Tens of thousands of bankers could be sent to jail or face limitless fines under tough new regulations being put in place today
Tens of thousands of City bankers could face seven years in jail or a limitless fine under new regulation being put in place today.
From today, senior managers in British banks, building societies or so-called systemically important investment firms will be held criminally liable for a range of offences, including taking a decision which causes their institution to fail, being aware of the risk that a decision could lead to institutional failure or demonstrating conduct “far below that could be reasonably be expected of a senior manager in that position”
Chancellor George Osborne said the strict new rules show that the government “has learnt from the lessons of the past”.
“We have reformed Britain’s banking regulation to help build a stronger and safer financial system and introduced new rules that mean individuals working in UK firms face some of the toughest sanctions in the world.
“It is absolutely right that a senior manager whose actions causes their bank to fail should face jail,” Osborne added.
The new regulations were first recommended by the Parliamentary Commission on Banking Standards (PCBS), a body that was formed after the financial crisis to spearhead reforms in the City.
Also coming into force today is the new Senior Managers and Certification Regime (SM&CR), which will hold top employees at banks, building societies, credit unions and Prudential Regulation Authority (PRA) regulated investment firms to adopt “statements of responsibility” and hold most senior staff accountable for misconduct at their institution.
The Treasury had originally proposed that under the new regulations, senior executives would be forced to prove their innocence when misconduct happened under their watch. But Treasury officials made a U-turn in October, saying a "duty of responsibility" would instead be applied.
The move was welcomed by many City bosses, who said scrapping the so-called reverse burden of proof” would help the Square Mile retain and attract top talent.
Yet many legal experts have warned that the new rules going into effect could still have detrimental effects on the industry.
Elly Proudlock, counsel in WilmerHale’s UK investigations and criminal litigation team, said senior managers “should not take too much comfort from last year’s U-turn”.
“The statutory duty of responsibility may not offend so much against accepted principles of justice, but it still gives the FCA a brand new cause of action to deploy against senior managers,” Proudlock added.
Arpita Dutt, a partner at Brahams Dutt Badrick French, agreed, saying: “It’s not just senior managers that will be affected by the Senior Managers Regime, and the top to bottom impact shouldn’t be underestimated.
“New conduct rules will govern the majority of individuals working in firms regulated by the new regime with the aim of achieving a cultural change and norm on acceptable standards of behaviour,” Dutt said.
“This new regime will inevitably put individuals under further stress and it might be that for some, these additional liabilities will be enough to stop them applying for a promotion to senior manager status or they may even consider a move abroad where the regulations for individuals in the banking sector are more relaxed.”
David Biggin, a financial services regulation expert at PA Consulting Group said the new regime “may make it harder to recruit”, saying: “The new rules are very broad in scope, covering all staff who have a role which is risk taking, customer facing or contains significant responsibility. For prospective senior bankers and non-executive directors, who will be caught by the regimes, it will add a layer of anxiety to their roles that some may feel is a step too far.
“For junior candidates, the changes could make the industry even less attractive,” Biggin added.