The position of bankers in the UK has never been one of popularity. The economic crisis of 2007/08 has only served to worsen the public’s perception of them, and their activities have increasingly been the subject to the scrutiny of politicians and regulatory authorities. Last month, the Financial Conduct Authority (FCA), the organisation responsible for policing financial services organisations, announced new measures regarding the accountability that bankers owe in performing their duties.
What is this about?
Following the economic crisis, and the belief that the law was not sufficiently robust to prevent senior bankers from, amongst other things, pursuing cavalier activities in respect of financial market stability, the Parliamentary Commission for Banking Standards published a report entitled “Changing Banking for Good”. This document set out a range of legislative and policy recommendations that it believed would change the prevailing culture in baking institutions. These have largely been endorsed by the UK Government, the FCA and the Prudential Regulation Authority –this is a part of the Bank of England that is responsible for the regulation and supervision of banks in the UK.
What are the new rules?
The rule changes have been made possible, following the passing of the Financial Services (Banking Reform) Act 2013. The Act has allowed for the creation of two new sets of regimes in respect of bankers and their activities:
1. Senior bankers, whose activities would have previously been regulated under the ‘Approved Persons Regime’will now be governed by a ‘Senior Persons Regime’.
This regime deals specifically with those individuals that have some form of senior management responsibility in a bank, i.e. responsibility for some function that involves a significant degree of risk to damage to the bank, or to other UK businesses.
The main thrust of the new regime is to hold senior bankers personally responsible for any breaches of the regulatory rules (misconduct) that they are identified as having responsibility for. Under the new rules, individuals will be given clear guidance on what aspects of a bank’s operations they will be responsible for. It should be noted, however, that certain responsibilities will always have to be left to the Bank’s board, and the new regime respects this fact.
If there is evidence that a senior banker has committed misconduct, they will be deemed to be guilty unless they can provide evidence that they took reasonable steps to avoid the commission of misconduct, or its continued commission. While a great deal will obviously depend on the particular circumstances, individuals will normally need to be able to evidence that they had implemented the necessary control systems, with supporting line management and information provision requirements.
If a regulator, e.g. the FCA, is not convinced that the individual concerned had not taken all reasonable action, it will have a range of disciplinary powers at its disposal, including:
- Imposing an unlimited fine;
- Banning the individual from working in financial services.
2. Banks will be under an obligation to implement a ‘Certification Regime’.
This regime applies to individuals, other than senior bankers, whose work means that they represent a potential risk to the organisation, its customers, or indeed to the wider financial marketplace in the UK.
A bank will be responsible for operating a licensing regime whereby it must assess all of the relevant employees, and establish whether or not they are ‘fit and proper’to carry out their jobs. Firms will need to have regard to a number of things in establishing an employees’fitness and propriety, including:
- The employees personal characteristics, i.e. do they demonstrate integrity and possess a good reputation for the work that they do;
- The employees qualifications; and
- The employees competence, knowledge and experience of the field, i.e. have they been operating at a particular level for a sufficient length of time to demonstrate familiarity with what their role involves; and
- The level of training that the employee has, or is undergoing.
If a firm is satisfied of their employee’s fitness and propriety, they must provide a certificate as evidence of this. Firms are obliged to do so on an annual basis.
The Act also brought about another significant change in the regulation of bankers’ conduct where that conduct resulted in the banks’failure. Under the 2013 Act, a senior bank manager will be vulnerable to a criminal charge of ‘reckless misconduct’where their actions result in the organisation’s failure. The offence has three component parts:
- Their decision, whether active or passive, caused the failure of the institution in question;
- When the decision was taken, the manager was aware of the risk that such a decision might cause the failure of the institution;
- Their conduct was ‘far below’the reasonable standard expected from a person in such a position.
It is open to a number of authorities to bring proceedings under the 2013 Act: the FCA, the PRA or even the Secretary of State. Furthermore, if a prosecution is successful, an individual can face up to seven years imprisonment. This is arguably one of the biggest changes in the regulation of banking conduct in the UK in recent history. The introduction of criminal sanctions for reckless behaviour follows the public outcry in the UK, following the financial crisis and the lacking of any individual being deemed personally responsible for the situation.
The regulatory landscape in which banks operate has been dramatically changed following the implementation of the 2013 Act. Bankers are under a great deal of scrutiny by regulators, who in turn, take their responsibility for ensuring stability in the UK financial marketplace very seriously. It is very important that if you suspect that your activities may become the subject of regulatory action under the new rules, you speak with a legal advisor who is familiar with this very sophisticated area of the law.
Contact Lewis Nedas Solicitors in London
Lewis Nedas are highly experienced lawyers with particular expertise in financial and regulatory law. Our team are regularly instructed to assist in dealing with FCA investigations, and are particularly familiar with the new regime governing bankers responsibilities. If you have questions regarding the new rules governing banking in the UK, please contact us. You may rest assured that any discussions that you have with us will be legally privileged, and that any legal advice we provide will be tailored to reflect your needs.
