Senior personnel in the finance world could soon be held personally responsible for their organisation’s failings and regulatory breaches – but newly proposed regulations could see this extended to non-executive board members.
Senior personnel in the finance world could soon be held personally responsible for their organisation’s failings and regulatory breaches – but newly proposed regulations could see this extended to non-executive board members.
Earlier proposals released by the FCA and Prudential Regulation Authority outlined plans to see banking chiefs bound to a Senior Managers Regime, which would “clarify the lines of responsibility at the top of banks,” while making it easier for regulators to “hold senior individuals in banks to account”. It would also require banks to undertake regular checks on managers to ensure their “fitness and propriety”
New rules have also been introduced that allow bonuses to be clawed back for up to seven years from date of issue, if evidence of malpractice arises.
“Holding individuals to account is a key component of our job as regulators of banks. The combination of clearer individual responsibilities and enhanced risk management incentives will encourage individuals in banks to take greater responsibility for their actions,” said Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the PRA.
Martin Wheatley, Chief Executive of the FCA, agreed, saying: “How a firm conducts its business and treats its customers must be at the heart of how it operates.”
However, a joint consultation is being held today on whether non-executive directors should also be subject to the accountability rules – something that the Institute of Directors (IoD) has described as “unrealistic and unhelpful”.
“Whilst we accept that criminal liability should exist for chief executives and senior executive directors who have personally taken reckless decisions, we do have severe reservations about bringing senior non-executive directors into the ambit of criminal liability,” said Dr. Roger Barker, Director of Corporate Governance and Professional Standards at the IoD.
Unlike their on-the-job counterparts, non-executive directors rarely have access to all company information and do not oversee the day-to-day decisions made by an organisation.
What’s more, says Barker, “their contribution to boardroom decision-making is not made in isolation” and needs to be looked at through “the principle of collective responsibility.”
“We also have severe concerns about whether such a move could have the unintended consequences of shrinking the available pool of experienced candidates willing to sit on the board of a bank,” he said.
“At the same time, the proposals will make very little practical difference in encouraging more effective boardroom oversight. We shall respond to the proposals in more detail but for now it would appear that the PRA and FCA may have gone too far.”