This is about accountability, not mere responsibility

Outlook

Banking executives are warning that the regulatory policies must be rolled out across the financial system, and not just imposed on commercial banks (Getty)

Bankers have been celebrating the Government’s decision to remove the “presumption of responsibility” from regulators’ incoming senior managers regime.

To listen to their supporters, this measure would have amounted to their being found to be “guilty until proven innocent” were things to go wrong on their watch. For example, if their traders were to, I don’t know, indulge in the fixing of interest rates, or to try to rig foreign exchange rates, or even indulge in the wholesale mis-selling of worthless insurance policies.

But here’s the thing: the presumption of responsibility was never intended to make bankers “guilty until proven innocent” in the event of wrong-doing. It would simply have imposed a requirement on senior bankers to do the jobs for which they are paid. To properly oversee the activities of subordinates and to take reasonable steps to ensure no monkey business.

The people who work at banks tend to be bright, and their entry into the profession is not motivated by altruism. As has been repeated ad infinitum, it doesn’t matter how good a bank’s systems are, or how watchful its managers are, a really clever and determined fraudster will get around them.

But the presumption of responsibility would not have seen their managers punished for subordinates who deliberately set out to pull the wool over their eyes.

The point about the scandals I allude to is that they involved far more people than just the odd bad egg seeking a shortcut to get to the sort of mega-bucks they see their bosses earning. They were carefully organised by big groups, went on for many months, and were even bragged about in chat rooms.

What we have learned about them does not speak well of the vigilance of the mangers of those involved – and yet none have (to date) been held to account.

The presumption of responsibility might have changed that.

While it is welcome that the replacement “duty of responsibility” will go beyond banks, extending across the financial services industry, it does put the onus on regulators to prove negligence and thus offers the industry’s leaders a get out that can be exploited by their lawyers.

What is really disturbing is it marks yet another watering down of regulatory reforms designed to deter a repeat of the above scandals or of the crass mismanagement at play in the run up to the financial crisis.

The banking industry is off the hook. What should really worry us now is that it knows it.