Accountability for the Reckless Banker…Finally!


29th August 2016

The introduction of the SMCR was based on a report produced by the Parliamentary Commission for Banking Standards in June 2013, which set out recommendations on how to improve professional standards and culture in the UK banking industry following a series of high profile industry exploitations such as the PPI and Libor rigging scandals.

The SMCR focuses regulatory prior approval on the key personnel at the top of financial institutions and organisations with ‘statements of responsibility’ for each senior manager, which translates to the personal accountability of that senior manager should the regulators identify any regulatory breaches committed by his/her financial services firm.

The SMCR has placed responsibility for ensuring key staff below senior management levels are fit and proper and the firms’ preparations will need to include putting in place suitable procedures for assessing staff propriety. Any misconduct that falls within the senior manager’s areas of responsibilities, the new SMCR will aim to hold senior management and individuals working at all levels in banking to appropriate standards of conduct.

“Appropriate and robust accountability for senior managers in financial institutions is a crucial part of the effective functioning of the economy,” commented Andrew Bailey, CEO of the PRA, when the regime was launched.

“At the heart of the new accountability regime, which comes into force, is one very simple principle – you can delegate tasks but you cannot delegate responsibility… This means that senior managers at banks and insurers should know what they are responsible for and can be held accountable for failings in their area”, Andrew Bailey further affirmed. It was initially envisaged that the new regime would enforce a burden of proof requiring bankers and senior managers to demonstrate they had done the right thing throughout any banking or financial services failure. However, after intense industry lobbying the revised burden of proof will now fall on the authorities to actively prove any presumed wrongdoing.

The launch of the SMCR picks up from the criminal liability placed on senior managers in UK finance houses, under section 36 of the Financial Services (Banking Reform) Act 2013. This uncompromising piece of legislation criminalises the conduct of an individual for decisions that cause a financial institution to fail. The Act expressly outlines conduct that will determine if a criminal offence has been committed by a senior manager:

  • he or she agrees to the taking of a decision which causes the institution to fail;
  • at the time of the decision, she or he was aware of the risk that the decision could cause the institution to fail;
  • his or her conduct in relation to the decision fell far below what could reasonably be expected of a senior manager in that position.

Any senior manager found guilty of such an offence on indictment could face the possible sentence of seven years imprisonment, an unlimited fine, or both. The UK is unwavering in its pursuit of tackling white collar crime and measures such as the SMCR and the 2013 Act firmly demonstrate the firm and robust action taken by the authorities.

Morton Fraser MacRoberts LLP

MacRoberts LLP, one of the largest independently owned law firms in Scotland, was founded over 150 years ago by the MacRobert family. We are a leading Scottish commercial law firm with full-service offices in Dundee, Edinburgh and Glasgow with a client base that reaches across Scotland and beyond.

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