UK regulators plan to include senior non-executives of banks and insurance companies alongside chairmen in a new personal liability regime to be revealed today. The FT reports that many in the City believe the new tougher regime could prevent able people from taking on senior executive roles in the industry.
The Bank of England (BOE) revealed proposals for a new code for senior bankers and insurers in July last year. In a bid to perpetrate those who do not take proper measures to prevent mistakes from happening, the new code would bring in new offence for reckless decisions and sanction, or even jail executives found accountable for causing financial institutions to fail.
In an article written for the FT by Andrew Bailey, head of Prudential Regulation Authority at BOE, says the chairman, senior independent director and heads of major board committees should also be subject to new rules. “Organisations need to make sure they have on the board people with the right skills, who are prepared to dedicate an appropriate amount of time to this vital role,” Bailey writes.
According to the FT, the proposal for the new code last year is an attempt to clean up the culture of the City from the top down after a number of scandals including Libor-rigging and HSBC’s recent tax-advice scandal. The new code for top banks and insurers creates the toughest set of rules and is more rigorous than any European equivalent.
Bailey also writes that it is not BOE’s intention that non-executives should take on executive roles because it would compromise their independence as a result of the regulatory changes. However, banks reportedly fear the repercussions that the code could bring and believe that any attempt to expand their scope could discourage non-executives from joining banking boards at a time when they are in high demand.
The FT reports that lawyers have also railed against the proposal because it essentially reverses the normal burden of proof and believe that it is the senior manager’s responsibility to prove to regulators that they did everything they could to stop a problem, not for regulators to show the manager was careless.
Under the new rules, which are set to take effect next year, authorities will be allowed to levy bans or hefty fines if senior executives cannot prove they took steps to stop problems occurring. The rules will also take effect for foreign banks’ UK branches following a consultation next month.