Senior managers under increasing FCA scrutiny: upcoming legislative changes

04 December 2013

Elizabeth Clay, Simona Rainer

Financial Services (Banking Reform) Bill

The proposals contained in the Financial Services (Banking Reform) Bill, currently progressing through the House of Lords are reflective of a wider move towards increasing regulation of individuals.  

Under the proposals it is likely to be required that an individual first obtain regulatory approval before being able to hold a senior management position and that the regulator be informed where changes are made to their responsibilities once that person is covered by the senior person regime.  The Bill envisages that such senior individuals will then be assigned key responsibilities (via the senior person regime), which will make it easier to take enforcement actions against them when things go wrong. Liability will attach to senior individuals unless they are able to establish that they took all reasonable steps to either prevent a breach or cure a continuing breach (i.e. a reverse of the burden of proof). The time period for enforcement action may also be extended.  

It is also envisaged that the Government will introduce a new criminal offence for reckless mismanagement that causes the failure of a bank.  The offence of reckless management, which will be reserved for serious offenders, will carry a prison sentence on the basis that "following a conviction, the remuneration received by an individual during the period of reckless behaviour should be recoverable through separate civil proceedings" (see Changing Banking for Good, the Parliamentary Commission on Banking Standards Report).

Bird & Bird comment: although the criminal offence is unlikely to be implemented until 2015, such measures are indicative of an increasingly tougher stance against individuals – particularly those in senior management in the financial services sector and the environment in which the FCA in particular is currently operating.