New rules to make bankers more accountable already seem to be giving some of them nightmares.

City of London bosses warn they may be so “terrified” of the latest regime that they will hesitate to make decisions, eschew risk-taking and struggle to hire directors.

Executives speaking at the Financial Times banking standards conference in London on Tuesday expressed a variety of concerns about the impact of the senior manager and certification regime, which came into force this week.

“This is [already] a difficult industry to recruit non-executive directors into . . . If you terrify them with that level of evidence; you make their job almost impossible,” said Jon Pain, head of conduct and regulatory affairs at Royal Bank of Scotland.

Keiran Ford, chief risk officer at Santander UK, sought assurances from a Financial Conduct Authority official speaking at the event that the new rules would be enforced “in a sensible way”.

“What I worry about is a big team from the FCA turning up at my offices with 30 guys to go through the minutes of every meeting to second guess a decision I made a few years ago,” said Mr Ford.

Tracy Clarke, head of compliance, HR, Europe and the Americas at Standard Chartered, said: “It does definitely change the dynamic in the way that senior managers engage with the board members both inside the boardroom and outside.”

The new rules came into effect on Monday for banks, building societies credit unions and insurers and is expected to be extended across the entire financial sector by 2018.

They have already prompted some bankers to quit, such as Tom King, who retired as head of Barclays’ investment bank last week, only days before he would have been subject to the rules.

But Mr Pain at RBS echoed the view of many executives when he said that overall the new regime was needed, adding: “What is there not to like?”

The idea was to improve accountability and the reputation of the City after a string of scandals, as well as addressing why no head of a bank has been punished as a result of the financial crisis.

While the most contentious element — a “guilty until proven innocent” provision was removed at the last minute by the Treasury — the regime still holds to account the very top of financial institutions for failings on their watch.

Senior managers and key non-executive directors risk fines or bans from the industry unless they can show they took all reasonable steps to prevent wrongdoing within their teams. There is also a parallel criminal offence of recklessly mismanaging a financial institution that fails.

 Sir Gerry Grimstone, the new deputy chairman of Barclays, said that even after Britain’s biggest banks paid over £50bn in fines since the 2008 crisis “there’s a palpable sense that the people who perpetrated the misconduct have not been brought to book”.

He added: “The outliers must be dismissed from the City; we have no room for them. The risk is that the fines have become a cost of doing business . . . the focus needs to be on bringing the right people to book.”

David Geale, director of policy at the FCA, told the conference on Tuesday: “This is an evolution, not a revolution. [ . . .] People will make wrong decisions; people will take risks. We want them to take risks, as long as they understand the risk and can show it’s a calculated risk.

“What we want to look at is: what was available to you at the time? What we are not going to do is look at every wrong decision and [punish you]. It’s the fact that you took the right steps to reach the decision that we’re interested in.”

Andrew Bailey, deputy governor of the Bank of England who will become the FCA’s new chief executive later this year, has previously said that the civil regime is not for “putting heads on spikes”.

The mapping of responsibilities to show the regulator who is accountable for a particular team or function should assist the FCA. The old financial watchdog, the Financial Services Authority, came unstuck in a landmark case known as Pottage when it tried to bring a case against a senior manager.

The FSA also originally declined to open investigations against the senior management of HBOS, the collapsed lender, partly because it knew cases against individuals were too difficult to win. That decision has been reversed this year.

 

Source: The Financial Times