Senior managers in UK banks could face jail if their actions cause the bank to fail, the Government has warned.
The bosses of UK banks, building societies or investment firms could face a maximum jail term of seven years or an unlimited fine if they make decisions which lead to the failure of a bank, or fail to stop others making such decisions, according to a new law which comes into force today.
The new regulation is designed to build a stronger and safer financial system.
George Osborne acknowledged that the Government “learnt its lesson” and said the new criminal offence is the “latest milestone” in order to ensure that British banking industry operates to the “highest possible standard”.
“It is absolutely right that a senior manager whose actions causes their bank to fail should face jail,” the Chancellor of the Exchequer said.
The sentence was included in a wide-ranging set of proposed amendments to the Banking Reform Bill and was first recommended by the Parliamentary Commission on Banking Standard (PCBS) a body that was formed after 2008 financial crisis.
The Senior Managers and Certification Regime (SM&CR) will also be coming into force today. The regulation will hold senior staff at companies to account with “statements of responsibility”, which means they will be held responsible if their company breaches regulatory requirements.
There will also be more flexibility to enable regulators to impose high standards of conduct on a wider range of staff in these institutions, including individuals doing jobs for which prior regulatory approval is not required.
Biggest business scandals in pictures
Biggest business scandals in pictures
1/12 Goldman Sachs dealmakers lavished Libyan officials with prostitutes to win contract,
A former Goldman Sachs dealmaker trying to persuade Gadaffi-era Libya to invest $1 billion with the investment bank procured prostitutes and invited Libyan officials to lavish parties in the hope of winning the business, the High Court heard on Monday June 13.The Libyan Investment Authority sovereign wealth fund is suing Goldman Sachs for inappropriately coercing its naïve staff into giving its sovereign wealth fund cash to the bank to invest in products they did not understand. The products were designed to generate big profits for Goldman, the LIA claims.Goldman denies wrongdoing and says the LIA was treated as an arms-length customer
2/12 Former boss of BHS said his life was threatened
Darren Topp, the former boss of BHS, has said former owner Dominic Chappell threatened to kill him when he challenged him over a £1.5 million transfer out of the business. MPs on the Business, Innovation and Skills Committee asked Mr Topp about a £1.5 million transfer Mr Chappell made from BHS to a company called BHS Sweden.
3/12 Sports Direct founder Mike Ashley admits paying workers below the minimum wage
Mike Ashley admitted paying Sports Direct employees below the minimum wage at a hearing in front of MPs. The company founder said that workers were paid less than the statutory minimum because of bottlenecks at security in an admission that could result in sanctions from HMRC.
4/12 Mitsubishi admits ‘improper’ fuel tests
Mitsubishi has admitted to using false fuel methods dating back to 1991. The scale of the scandal is only just coming to light after it was revealed in April that data was falsified in the testing of four types of cars, including two Nissan cars.
5/12 Panama Papers: Millions of leaked documents expose how world’s rich and powerful hid money
Millions of confidential documents have been leaked from one of the world’s most secretive law firms, exposing how the rich and powerful have hidden their money. Dictators and other heads of state have been accused of laundering money, avoiding sanctions and evading tax, according to the unprecedented cache of papers that show the inner workings of the law firm Mossack Fonseca, which is based in Panama.
6/12 Google's tax avoidance
Google reached a deal with the HM Revenue and Customs to pay back £130 million in so-called “back-taxes” that have been due since 2005. George Osborne championed the deal as a “major success”. But European MEPs have since called for the Chancellor to appear in front of the committee on tax rulings to explain the tax deal.
7/12 Turing Pharmaceuticals and Martin Shkreli
Martin Shkreli became known as the “most hated man in the world” after his drug company, Turing, increased the price of a 62-year-old drug that treated HIV patients by 5,000% to $750 a pill. He was charged with illegally taking stock from Retrophin, a biotechnology firm he started in 2011, and using it pay off debts from unrelated business dealings. Shkreli, who maintains he is innocent, and says there is little evidence of fraud because his investors didn't lose money.
8/12 Volkswagen emissions scandal
VW admitted to rigging its US emission tests so that diesel-powered cars would looks like they were emitting less nitrous oxide, which can damage the ozone layer and contribute to respiratory diseases. Around 11 million cars worldwide were affected.
9/12 Quindell, the scandal-ridden insurance firm
Quindell was once a darling of AIM but its share price fell in April 2014 when its accounting practices were attacked in a stinging research note by US short seller Gotham City. In August the group was forced to disclose that the £107 million pre-tax profit it had reported for 2013 was incorrect, and it had in fact suffered a £64million loss.
10/12 Toshiba Accounting Scandal
The boss of Toshiba, the Japanese technology giant, resigned in disgrace in the wake of one of the country’s biggest ever accounting scandals. His exit came two months after the company revealed that it was investigating accounting irregularities. An independent investigatory panel said that Toshiba’s management had inflated its reported profits by up to 152 billion yen (£780m) between 2008 and 2014.
11/12 FIFA Corruption Scandal
Fifa, football's world governing body, has been engulfed by claims of widespread corruption since the summer of 2015, when the US Department of Justice indicted several top executives. It has now claimed the careers of two of the most powerful men in football, Fifa President Sepp Blatter and Uefa President Michel Platini, after they were banned for eight years from all football-related activities by Fifa's ethics committee. A Swiss criminal investigation into the pair is ongoing.
12/12 Libor fraudster
City trader Tom Hayes, 35, has become the first person to be convicted of rigging Libor rates following a trial at London's Southwark Crown Court. Hayes worked as a trader in yen derivatives at UBS before joining the American bank Citigroup in Tokyo. He was fired from Citigroup following an investigation into his trading methods. He returned to the UK in December 2012 and was arrested following a two-and-a-half year criminal investigation by the SFO.
The proposals are in response to public anger over scandals such as the rigging of benchmark interest and foreign exchange rates which exacerbated the negative perception of the financial industry among Britons for whom the memories of the £66 billion taxpayer-funded bailouts of RBS and Lloyds are still fresh.
Many Britons complained that no senior bankers faced criminal action for those failures.
“Today's policy measures are an important step in ensuring that regulators have the tools at their disposal to hold individuals to account and they build on the cultural change we are beginning to see in the boardrooms of firms across the country,” Martin Wheatley, FCA chief executive, said when the law was proposed in 2015.