Treasury considers plan to bar failed banks' directors

The directors of failed banks could be prevented from holding senior positions at financial institutions again in the future under proposals announced by the Treasury today.

The Government is also launching a consultation on the possibility of introducing a new criminal offence covering serious misconduct in bank management.

The proposals follow the Financial Services Authority's report into the failure of Royal Bank of Scotland, which concluded that the poor judgment and management errors of directors and senior managers was partly to blame for the bank's failure.

The onus is presently on the regulator to prove that an individual is not fit to hold an executive position in a bank.

Today's proposals mean that an individual who has been a director in a failed bank will have to prove that they acted properly and were not responsible for the failure before taking up a similar position.

The Government will amend the Financial Services Bill, subject to conclusion, at the report stage in the House of Lords, meaning it could come into effect from next year.

Meanwhile, a consultation on the possibility of a new criminal offence covering serious misconduct in bank management will consider issues of negligence, incompetence and recklessness, which could cover excessive risk-taking.

However, the Treasury said this was an initial consultation covering complex issues and it would not be possible to include the proposal in the Financial Services Bill.

Mark Hoban MP, financial secretary to the Treasury, said: "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."

The intensifying crisis surrounding banking culture and ethics, sparked by rate-fixing claims, is thought to have pulled the need for a consultation on criminal sanctions to the fore.

The proposed changes are designed to sit alongside the wider and fundamental changes to the structure of the sector that the Government is taking forward including recommendations by the Independent Commission on Banking and a shake-up of the regulatory system.

The Treasury has asked for responses to its consultation by September 30.

PA