UK banking watchdog reduces reach of new accountability rules
Wednesday, 25 February 2015 00:00
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LONDON (Reuters): It has been decided that new rules making senior bankers in Britain more accountable for their actions will not now apply to non-executive directors who don’t have specific duties such as scrutinising bonuses, regulators said on Monday.
The rules, known as the senior managers’ regime and due to take effect by 2016, are designed to plug a gap highlighted by the 2007-09 financial crisis when few individuals were held responsible after taxpayers had to rescue several lenders.
They will cover board members and senior staff such as heads of trading desks to make it easier to punish bad behaviour with a variety of sanctions, including fines and dismissal.
But bankers complained after a draft of the new rules was put out to public consultation last year that the net was being cast too widely, making it harder to recruit non-executives.
“Non-executive directors play a vital role in providing challenge to and an independent oversight of the executive directors,” the Financial Conduct Authority’s chief executive, Martin Wheatley, said on Monday.
“Including all NEDs in the new regime would risk the unintended consequence of changing the whole nature of this vital role.”
The chairman, senior independent director and chairs of the bank’s risk, audit, remuneration and nominations committees will be the only board members to come under the new rules.
The Prudential Regulation Authority (PRA), which supervises banks for solvency, said the same type of non-executive directors at insurers, apart from nomination committee chairs, will also come under the new rules.
The FCA is to consult in the coming months on applying the rules to British branches of foreign banks. Senior staffs at the UK subsidiaries of foreign banks are already included.
Bankers say a feature of the rules which puts the burden of proof on the accused due to a ‘presumption of responsibility’ will make it harder to recruit top officials.
An individual will be sanctioned for rule breaches unless they can demonstrate that they took reasonable steps to stop or avoid a problem.
The PRA published examples on Monday of what actions could constitute such reasonable preventative steps, a step the FCA will also make soon.
The presumption of responsibility and criminal sanctions for a new charge of reckless behaviour causing a bank failure won’t apply to insurers, the PRA added.
Regulators also set out how to make it easier for banking and insurance staff to blow the whistle on bad behaviour without fear of reprisals.
Firms will have to appoint a ‘whistleblowers’ champion’ to oversee whistle blowing arrangements, report annually on how they work, and tell the regulator where an employment tribunal finds in favour of the whistleblower.
“Whistle blowing can be an emotive issue but if firms have an appropriate regime in place it can enable the firm to identify issues and remedy them before they become a significant regulatory or legal failing,” said Michael Ruck, a lawyer at Pinsent Masons.
