Presumption of responsibility for bankers in UK

Senior bankers will be presumed guilty until proven innocent under strict new rules proposed by British regulators seeking to hold individuals accountable for bank failures.

The Financial Conduct Authority yesterday announced details of a “presumption of responsibility” rule which requires senior managers to demonstrate that where a firm is guilty of misconduct they “took such steps as a person in their position could reasonably be expected to take” to avoid it happening.

“The reversed burden of proof will put senior managers at banks under real pressure,” said Simon Morris, financial services partner with law firm CMS.

In a concession to the industry, the authority has decided the rules will not apply to non-executive directors who do not have delegated responsibilities.

The proposals are in response to public anger over scandals such as the rigging of benchmark interest and foreign exchange rates which exacerbated the negative perception of the financial industry among Britons for whom the €92.5bn taxpayer-funded bailouts of RBS and Lloyds are still fresh in the memory. Many Britons complained that no senior bankers faced criminal action for those failures.

“Today’s policy measures are an important step in ensuring that regulators have the tools at their disposal to hold individuals to account and they build on the cultural change we are beginning to see in the boardrooms of firms across the country,” said authority chief executive Martin Wheatley.

The outline of the new rules was already known, with new powers being put in place to jail bankers for up to seven years for reckless misconduct. Wheatley said the new rules were not a “heads on sticks” strategy.

“There is no sense in which we will use this for some form of institutionalised scalp-hunting,” he said.

“In fact, our expectation is that the heightened accountability will reduce the need for individual pursuits by regulators,” he said.

The rules also include a certification regime that will require firms to run annual checks to assess the “fitness and propriety” of staff who are “deemed capable of causing significant harm to the firm or any of its customers”.

The regulator is also consulting on proposals to extend the new rules to staff at the UK branches of foreign banks.

The new regime was born out of recommendations made by parliament’s Banking Standards Commission, which was set up to find ways to improve culture and conduct within the industry.

However, commission chairman Andrew Tyrie criticised the plans saying they affected too many staff and regulators should narrow the certification regime to focus on those who could seriously harm a firm, its customers or the financial system.


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