Is this a step too far for nailing bankers?

In August 2014 London Mayor Boris Johnson called for ‘guilty until proven innocent’ to become the law for suspected terrorists. He argued for a reverse of the normal presumption of innocence for those who travel to Iraq and Syria.[1]

Let’s not stop at terrorists though. Why not bankers? New laws to nail irresponsible bankers seem likely to emerge along similar lines Johnson demanded for terrorists.

Changes now on the legislative horizon have stemmed from the previous impotence of regulators to fred-goodwin (1)take effective action against some of the main characters—think Fred the Shred; think Libor etc.– involved in serious failures at the time of the 2008 financial crisis and later.

This situation has not merely infuriated regulators and the wider public,  it has been a catalyst for change.

First, it led to the establishment of the Parliamentary Commission on Banking Standards (PCBS). Its recommendations in June last year came with a withering criticism of the so-called Approved Persons Regime.[2]

This regime should be scrapped, recommended the commission. Instead, there should be a stricter set of requirements, supported by new conduct rules. The resulting report from the Bank of England’s Prudential Regulatory Authority,  labelled the prevailing regime “a complex and confused mess”.[3]

Second, current legislation now apparently heading towards the statute books is certainly scaring some bankers. For example the consultation paper from the Bank of England this year spelled out a new presumption of senior management responsibility. This means that senior  managers are

“effectively ‘guilty until proven innocent’, as the onus is on these individuals to demonstrate that they took the necessary steps to prevent such misconduct arising.”

Mark Carney2Faced with this impending punitive environment aimed at making executives criminally liable if a bank is shown to have behaved badly, at least two senior HSBC bankers have since resigned. However, the Bank of England’s governor Mark Carney has no sympathy for them, snorting in effect: “If you can’t take the heat get out of the boardroom.” [4]

But a top executive at Standard Chartered has tried to play down the pressure, arguing that regulators are treating banks like criminals: Jaspal Bindra, head of StanChart’s Asia operations, complained

“banks have been asked to play the role of policing anti-money laundering … [but when] we have a lapse we don’t get treated like a policeman, we are treated like a criminal.”
StanChart executive hits out at treatment of banks, FT 8th August 2014

A former Attorney General has been highly critical of Boris Johnson’s demand for a reverse of the “presumption of innocence, long enshrined in UK law. He called it “draconian and a dangerous precedent.” [5]

Much the same might be said about the proposed new law for bankers. To assume they are automatically guilty if their bank misbehaves is surely a step too far in trying to remedy a culture in which accountability is seriously lacking.

While seemingly bringing some sanity to the present situation the guilt assumption seems to be a dangerous step, a throw back to more dictatorial times and a denial of natural justice.

There is also a big difference between criminal responsibility and a wider one of accountability. For example, if you are caught speeding in a 30 mph area the assumption is you have committed a civil offence not a criminal one. Much the same might be applied to wayward bankers, in which they need the equivalent of a civil offence.

Yet the social licence for banks is now firmly in question. If you want to run a bank you are going to have to live with not just more rules, but ones that make it clear who is accountable. Being accountable could mean a criminal record and ultimately jail.

Given how many over paid and irresponsible bankers have got away with dumping on society the job of picking up the pieces from their poor judgements and excessive risk taking, will society settle for anything less?

 

Thanks to R.A for suggesting the topic of this post.

 

 

 

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