The British government is considering tougher sanctions against those who seriously mismanage banks, including the introduction of a new criminal offence.
The UK Treasury said Tuesday that it is consulting on the possibility of introducing criminal sanctions for serious misconduct in the management of a bank. While the criminal law can already sanction behaviour such as fraud, insider dealing or making misleading statements, the proposal would involve the creation of a new criminal offence. The new offence may not require dishonesty, but could seek to punish negligence, incompetence or recklessness, or other forms of purely managerial misconduct.
It also published proposals that could prevent the directors of failed banks from holding similar positions at other financial institutions. Currently, the onus is presently on the regulator to prove that an individual is not fit to hold an executive position in a bank. Under the proposals, if an individual has been a director in a failed bank, there will be a presumption that they should not be holding a similar position in another financial institution, unless it can be shown that they had no responsibility for the failure of the bank and acted properly.
The Treasury says the recommendations follow the findings of a report by the UK Financial Services Authority (FSA) into the failure of the Royal Bank of Scotland, which was published in December 2011, highlighting how the errors made by senior management contributed to the bank having to be bailed out.
“The government is committed to tackling the legacies of the crisis and implementing the most far-reaching reforms of British banking in our modern history. Today’s proposals are some of the most ambitious in Europe and will make it easier for the regulator to stop directors of failed banks from taking up similar positions in the future. Because of the serious consequences that a bank failure can have on the economy and taxpayers, we are also consulting on whether to extend the criminal law to cover serious misconduct in bank management,” said the financial secretary to the treasury, Mark Hoban.
The consultation is open for comments until September 30.