UK softens rules for senior bankers, widens scope of regulation
Britain announced it was scrapping plans that would treat senior bankers as 'guilty until proven innocent', in a move likely to infuriate regulators but ease industry fears that tough new rules will scare top talent away from London.
The finance ministry said that as part of a new bill being launched in parliament, rules to make individual senior bankers more responsible for failings on their watch would be broadened out to cover the entire financial sector.
"We are extending the Senior Managers & Certification regime so that tough standards of personal responsibility and accountability apply beyond banking and across the entire financial services industry," a finance ministry spokesman said.
The so-called senior managers regime for comes into effect next March for British and foreign banks operating in the UK.
But under the new plans the ministry has dropped a requirement for top bankers to prove they were unaware or had taken action to prevent misconduct at their institutions - known as 'reverse burden of proof' - and instead introduce a less onerous 'duty of responsibility' on such employees.
The new duty of responsibility will require senior managers to take appropriate steps to prevent a regulatory breach from occurring.
The senior managers regime is a response to public anger that few individual bankers were prosecuted or put in jail following taxpayer bailouts of lenders during the financial crisis.
In June a review of markets by the Treasury, regulators, and the Bank of England, known as the Fair and Effective Markets Review, recommended extending the regime to non-banking parts of the financial services industry.
Whilst the extension of the rules had been expected, the change in the way that senior managers are treated within the rules is likely to be construed as a significant softening of stance by Chancellor George Osborne.
The original plan's reverse burden of proof element had provoked concern at banks who feared it would make it much harder to hire top bankers.
Ditching it will be a blow for the Bank of England and the Financial Conduct Authority, the two bodies that regulate banks in Britain.
Both have adopted hardline approaches to supervision after regulators were found wanting in the run-up to the financial crisis, arguing that a tough new regime is needed to make it easier to pin blame for misconduct on individuals.
Osborne signalled in a key speech in June that he wanted a "new settlement" with the financial sector, taken to mean an end to banker bashing.
A few weeks later, he ousted FCA chief executive Martin Wheatley, who had warned he would "shoot first" and ask questions later as he faced fresh scandals in the sector such as the attempted rigging of Libor and currency benchmarks, and the mis-selling of loan insurance.