New UK rules hold bankers accountable for misconduct
New rules to hold bosses responsible for wrongdoing at British banks is deterring some bankers from taking on senior management roles and even prompting big-hitters to play down their own importance, say legal and compliance experts. Public anger that so few senior bankers were punished after taxpayers bailed out the industry in the financial crisis, or for scandals such as Libor and currency-market rigging, has led to the rules which make it easier to hold them to account. The Senior Managers Regime (SMR) from Monday replaces a system that UK lawmakers criticized for giving illusory control over individuals with little prospect of enforcement action.
A step change in banking rules, it will allow regulators to pin blame on named people rather than just firms, which lawyers said has triggered anxiety among top bankers.
"I have had some clients with staff resistant to being a senior manager, worried they are going to be kept awake at night about what their team is doing, and if something goes wrong, will they be the scapegoat," said Sarah Henchoz, an employment partner at Allen & Overy law firm. Unlike the old system, bankers deemed to wield significant managerial influence will have to sign up to a legal duty of responsibility for their units, and show they took reasonable steps to prevent or stop rulebreaking that comes to light.
They include CEOs, heads of big business units, and non-executive directors who chair key committees and will amount to about 10,000 staff across 900 banking companies, or an average of about 12 per firm, rising to 40-50 for the biggest lenders.
Ron Gould - a former UK regulator who is now European Chairman of Compliance Science, which helps financial companies comply with rules - said some senior bankers were looking at whether they could convince regulators that they did not have significant managerial influence over their teams.
"One thing I have seen that does make me smile is the wonderful term used by some firms that want to 'juniorise' positions," Gould said. "It may be more wishful thinking than anything else." One person familiar with how the SMR is being introduced said regulators were aware of this and were pushing back against banks that fail what the person described as the "sniff test" - or too many senior managers saying that they did not have full responsibility over teams but simply reported to other more senior managers.
But such attempts at creating a chain of senior managers to blur direct accountability were not widespread, the source said.
Britain's Financial Conduct Authority (FCA) and the Bank of England's Prudential Regulation Authority, which will both enforce the regime, declined to comment.
Asked if bankers were balking at the new rules, Simon Hills, an executive director at the British Bankers' Association, said the SMR was regarded in the industry as a key element to restoring trust in banking. "I talk to senior managers at banks who say it's been a useful exercise, enabling banks to check and confirm they have got the right people in the right roles and clarify job descriptions where necessary."
The United States and other European countries have not gone as far as the SMR by holding senior managers personally responsible by law. Requirements in the rules for senior managers to demonstrate they took steps to prevent or stop rulebreaking will also prompt bosses to document all delegation of tasks and to archive emails to help keep them in the clear if misconduct is uncovered, lawyers said.
"You need to be clear that you have a document trail on how you delegated responsibility, how you supervised key parts of the business, that you know in five years' time exactly what you did," said A&O's Henchoz. Adrian Crawford, employment partner at Kingsley Napley, which advises individuals in the financial sector, said more senior managers might have been held responsible for the Libor-rigging scandal if SMR had existed in past years.