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Sanctions for Directors of Failed Banks

Volume 547: debated on Tuesday 3 July 2012

The Government are today launching a consultation on proposals that could prevent the directors of failed banks from holding similar positions at financial institutions in the future. The Government are also consulting on the possibility of introducing criminal sanctions for serious misconduct in the management of a bank.

The Financial Services Authority’s (FSA) report into the failure of the Royal Bank of Scotland, published in December 2011, highlighted how errors made by senior management contributed to the bank having to be saved by the taxpayer. It also set out the difficulty in taking regulatory action against the individuals concerned under the Financial Services and Markets Act 2000.

The Government are 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.

The first proposal will make it easier for the regulator to stop directors of failed banks from taking up similar positions in the future. At present, the onus is on the regulator to prove that an individual is not fit to hold an executive position in a bank. The proposals in the consultation, if taken forward, will 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 in another financial institution in the future. If taken forward, the necessary measure would be included (as a Government amendment) in the Financial Services Bill.

The second proposal would involve the creation of a new criminal offence for serious misconduct in the management of a bank. Government recognise that there are practical issues to consider and that the introduction of a new criminal offence could raise complex issues. So this is an initial consultation. As a result, it would not be possible to include the proposal in the Financial Services Bill and, if it is taken forward, the Government would envisage including the necessary legislation in another Bill during this Parliament.

The consultation will close on 30 September 2012. Copies of the consultation document have been placed in the Libraries of both Houses.