Senior bankers could face seven years in prison or an unlimited fine in future if their reckless actions cause their institutions to fail.
As of 7 March, senior managers in UK banks, building societies or Prudential Regulation Authority-regulated investment firms will have committed a criminal offence if they agree to a decision that causes the institution to fail, knew it could cause the institution to fail, and their conduct fell far below what could reasonably be expected.
The new Senior Managers and Certification Regime (SM&CR) also came into force on 7 March, replacing the existing Approved Persons Regime for deposit takers and investment banks. It will introduce “statements of responsibility” for each senior manager, making it less easy for them to duck the blame for any breach of regulatory requirements.
Gerard Forlin QC, of Cornerstone Barristers, says: “I would be very surprised if anyone was ever convicted of this offence, but it may well act as a brake on reckless investment and behaviour by white knuckle rider bankers and employees craving an ever-increasing bonus.
“Further, interestingly, the test of the ‘decision falling far below what could reasonably be expected of a senior manager in that position’ emanates from the world of health and safety as it was originally debated by the select committee when considering the Corporate Manslaughter and Culpable Homicide Act 2007.”
“Although each case will turn on its own facts, the prospects of the Crown discharging the criminal burden of proof in order to satisfy the multiple evidential hurdles required by the new offence are so remote that it is very unlikely that this offence will ever be successfully prosecuted,” he added.
However, he welcomed the SM&CR as a “very significant development in the regulation of individuals working for UK banks”.
“The previous regime was not fit for purpose and the increased clarity which the new regime requires around the scope of individual responsibilities of senior managers is generally to be welcomed.”
Lawyers question prospects of Crown discharging criminal burden of proof