UK softens demands on its senior bankers

Britain yesterday announced it was scrapping plans that would treat senior bankers as ‘guilty until proven innocent’. This will concern regulators, but ease industry fears that tough new rules would scare top talent away from London.

The country’s finance ministry said that, as part of a new bill in parliament, rules to make individual senior bankers more responsible for failings on their watch would be broadened out to cover the entire financial sector.

“We are extending the Senior Managers and Certification regime, so that tough standards of personal responsibility and accountability apply beyond banking and across the entire financial services industry,” said a finance ministry spokesman.

The so-called senior-managers regime comes into effect next March, for British and foreign banks in the UK.

However, the ministry has dropped a requirement for top bankers to prove they were unaware of, or had taken action to prevent, misconduct at their institutions. This is known as ‘reverse burden of proof’. Instead, they will introduce a less onerous ‘duty of responsibility’ on such employees.

The new duty of responsibility will still require senior managers to take appropriate steps to prevent a regulatory breach. However, it will now be for the regulators, rather than the senior manager, to prove that reasonable steps to prevent breaches were not taken.

Andrew Bailey, deputy governor of the BoE and chief executive of its banks supervisory arm, the Prudential Regulation Authority, said the change of wording will make little difference in practice.

“This change is one of process, not substance,” said Mr Bailey. “The focus for firms and individuals should be on complying with both the letter and the spirit of the rules, rather than considering ways to circumvent them.”

The senior managers regime is a response to public anger that few individual bankers were prosecuted or jailed following taxpayer bailouts of lenders during the financial crisis.

In June, a review of markets by the Treasury, regulators and BoE, known as the Fair and Effective Markets Review, recommended extending the regime to non-banking parts of the financial services industry.

Whilst the extension of the rules had been expected, the change in the way that senior managers are treated within the rules is likely to be construed as a significant softening of stance by the British chancellor, George Osborne.

The original plan’s reverse-burden-of-proof element had provoked concern at banks, which feared it would make it much harder to hire top bankers. Ditching it will be a blow for the Bank of England and the Financial Conduct Authority, the two bodies that regulate banks in Britain.

Both have adopted hardline approaches to supervision, after regulators were found wanting in the run-up to the financial crisis.