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article imageUK Government backs law to jail reckless bankers

By Robert Myles     Jul 9, 2013 in Business
London - The UK Government gave its backing yesterday to a proposed law which would create a new criminal offence of reckless misconduct by senior bankers. Sanctions against those found guilty of reckless banking could include a prison term.
The British government’s backing for stricter controls on bankers and the ultimate sanction of prison for those in bank senior management who conduct business recklessly came in the UK government’s response to a report by the Parliamentary Commission on Banking Standard’s (PCBS), sometimes known as the ‘Tyrie Commission,’ entitled ‘Changing banking for good.’
The response from HM Treasury said the UK Government, “endorses the principal findings and intends to implement the PCBS’s main recommendations to address the failings the Commission identified on individual accountability, corporate governance, competition and long term financial stability.”
The Tyrie Commission was set up in response to the banking collapse of 2008 and the subsequent LIBOR rate-fixing scandal which came to light in 2012. The banking collapse saw two major British clearing banks, Royal Bank of Scotland (RBS) and HBOS almost go to the wall. RBS was bailed out with billions of taxpayer cash, whilst HBOS was ‘rescued’ by another major bank, Lloyds Bank, only for Lloyds to subsequently discover just how poisoned was the HBOS chalice. A number of smaller institutions were effectively taken over by the state.
Following the LIBOR interest rate fixing scandal, a number of major international banks, including British bank Barclays, had to pay multi-million dollar fines to regulatory authorities in the UK and the US. In the case of Barclays, it had to pay a $160-million fine imposed by the US Department of Justice.
Swiss-based multinational bank UBS was also fined heavily as a result of LIBOR manipulation. In December 2012, two UBS former traders, Thomas Hayes and Roger Darin became the first to be charged in the worldwide scandal when United States prosecutors brought charges of conspiracy to manipulate the interbank lending rate, as reported at the time in the Huffington Post. Hayes also faces prosecution in the UK after Britain’s Serious Fraud Office brought eight charges related to fraudulent trading and is likely to stand trial in October 2013.
Other than the cases of Hayes and Darin, what has been remarkable about the banking collapse and subsequent rate-fixing allegations has been the complete absence of anyone being called to account for actions which have affected just about every citizen in the Western world, plunging numerous countries into double, sometimes triple-dip, recessions to varying degrees.
Whilst the impending new UK legislation will have no bearing on what has gone before — what was previously not a crime will remain just that — it does look as though the British government is intent on lifting the corporate veil to some degree so that, in future, those in the higher echelons of banking corporate governance will no longer be able to shelter from the force of the law behind the legal persona of the company.
In summary the main heads of the Tyrie proposals for future banking regulation comprise:
• introducing a criminal offence for reckless misconduct for senior bankers. Those found guilty could face a jail sentence.
• tackling the bonus culture by working with financial regulators to more closely align bankers’ pay with performance. There are subsidiary proposals to defer the actual payment of bonuses for up to 10 years and to legislate for 100% confiscation of bonuses if a bank is bailed out by the state.
• introducing a strengthened regime governing the conduct of senior bank staff with new rules promoting higher standards among all bank staff.
• reversing the burden of proof to hold bank bosses accountable for breaches within their areas of responsibility. Fraud and failure in standards prosecutions are notoriously difficult to prove. In effect there would be a presumption of guilt if something went wrong on a banker’s watch.
• working with regulators, to beef up corporate governance, ensuring that firms have appropriate procedures and systems to identify risks and maintain standards on ethics and culture.
The Tyrie Commission also made subsidiary recommendations both of which may benefit UK consumers. The UK’s new banking regulator, the Prudential Regulation Authority (PRA) would be given additional powers to improve competition in the banking sector and there is a proposal to give legislative clout to seven-day account switching between banks again to improve competition.
Jailing bankers “is a start”
The Tyrie Commission’s proposals were welcomed both by Conservative Chancellor of the Exchequer, George Osborne and his Liberal Democrat coalition partners. Chancellor Osborne said, “Last summer I called for a thorough and intensive investigation into how to improve standards in the banking system and the PCBS has delivered. I am pleased to say that the government will implement its main recommendations. Where legislative changes are required we will amend the Banking Reform Bill which is currently before Parliament.”
For the Liberal Democrats, Secretary of State for Business, Vince Cable, who has long argued for much tougher banking regulation, up to and including gaoling bankers, said, “If we’re to get our economy back on track, we need to get the banking system back on track first. Creating new powers to jail bankers who are reckless with other people’s money and getting more competition into banking, is a start.”
More about banking collapse, libor scandal, bankers' bonuses, international banks, Wall street
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