New UK rules hold bankers ac­count­able for mis­con­duct

The Pak Banker - - COMPANIES/BOSS -

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.

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