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.
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.
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