There have been many ruffled feathers in the press over the last week or so about proposals from the Tyrie Report published by the Banking Commission, in particular the suggested new criminal offence for reckless bankers. This proposed new offence will carry a maximum term of imprisonment of seven years and/or an unlimited fine. This will form part of the Treasury's Banking Reform Bill.
The new offence of 'reckless misconduct in the management of a bank' will apply to senior bankers who are listed on the recently established Register of Senior Bankers, and whose bank headquarters are based in the UK. The offence will arise if bankers take decisions which lead to the failure of the bank or if they fail to stop others from making such decisions.
Frankly, this proposed offence is just a sop to the furious public who have been baying for the blood of bankers since the beginning of this financial crisis and have not seen any banker prosecuted thus far.
If we look at this proposal from a legal perspective we will see that, if this offence finds its way onto the statute in this format, it will be impossible for any prosecutor to bring a successful conviction.
The offence is based on 'recklessness' and purports to follow the US model of 'reckless endangerment' used in US health and safety legalisation and the test in UK corporate manslaughter cases.
Why does the Government think that it will be appropriate to use legal tests that apply, for example, to the oil/gas or building industries, in the fast moving multi-jurisdictional world of City Finance?
Large scale banking decisions do have a degree of risk built in; the banks are there to make money after all.
A decision made in 2006 that may have been the correct decision at the time in the banking world because of current economic conditions, could be deemed to be reckless many years later when/if the authorities ever get around to investigating them, and which, with the benefit of hindsight, could have proved itself to be a disastrous decision. However that does not necessarily make the decision reckless at the time.
It will be difficult to attribute blame to one senior banker alone when all major decisions are ratified by the Board of the bank, other senior bankers, lawyers/advisers etc.
The prosecuting authorities are unlikely to run an expensive prosecution which is very likely to fall at the first legal hurdle; the reputational risk will outweigh any potential benefits.
Far wiser to take any 'reckless bankers' down the regulatory route.
