Finance watchdog dilutes plans to make bank boards criminally liable

Prison Bars

The Financial Conduct Authority has watered down plans to make banks’ boards criminally liable for the company’s actions after lobbying by the financial industry.

The FCA proposed last July that non-executive directors should be classed as senior managers, making them directly accountable and opening them to prosecution for decisions that led to the bank’s failure.

But in an update on its proposals, the FCA said on Monday that non-executives covered by its senior managers regime would be limited to the chairman, the senior independent director and those who chair board committees.

Banks told the FCA and the Bank of England’s Prudential Regulatory Authority that making all non-executives directly responsible could undermine their independence and deter candidates from joining a bank’s board.

Martin Wheatley, the FCA’s chief executive, said: “Non-executive directors play a vital role in providing challenge to and an independent oversight of the executive directors. Including all non-executive directors in the new regime would risk the unintended consequence of changing the whole nature of this vital role.”

In October, two directors of HSBC’s UK bank were said to be ready to resign because of the threat to make them legally liable for a bank’s failure. HSBC’s chairman later told the Treasury committee that neither director was quitting because of the proposal.

Simon Hills, an executive director at the British Bankers’ Association, said the lobby group had told regulators that making all non-executives directly responsible for a bank’s fortunes could involve them too much in its business.

“It is welcome that the regulators have responded by adapting their proposals to only include those senior non-executive directors who have specific responsibilities. This should ensure that bank boards still retain non-executives who are able to provide constructive but critical advice to the bank’s executive.”

The parliamentary commission on banking standards recommended a criminal offence of reckless conduct when it reported in 2013. Its findings reflected widespread anger that no top bankers had been charged or imprisoned for actions that made them rich while damaging the economy.

The Institute of Directors said the revised proposals were still too severe and did little to improve board oversight.

Roger Barker, the institute’s corporate governance director, said: “A non-executive director does not have access to the same level of information as an executive director, and does not have the same individual decision-making powers. It would be quite something for the regulator to be able to identify individual criminal culpability of a part-time non-executive director having led to the collapse of a major bank.”

Powered by Guardian.co.ukThis article was written by Sean Farrell, for theguardian.com on Monday 23rd February 2015 16.40 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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