“[H]igh risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators” (Levin–Coburn Report of the US Senate) were in part blamed in the United States for the global financial crisis of 2007–08.
Failures by financial institutions in risk management and corporate governance were also targeted by the US Financial Crisis Inquiry Commission.
The UK has echoed these conclusion and many UK observers have scrutinised the future role and accountability of senior management in avoiding another scandal or crisis.
In June 2013, the Parliamentary Commission for Banking Standards (PCBS) set out recommendations for reform in its report “Changing Banking for Good”.
Andrew Bailey, Deputy Governor, Prudential Regulation, Bank of England and CEO of the Prudential Regulation Authority (PRA) has recently said that “senior managers will be held individually accountable if the areas they are responsible for fail to meet … requirements”.
He also stated that the “new accountability regime will hold all senior managers, including non-executive directors, to a clear standard of behaviour” and action will be taken “where they fail to meet this”.
The Banking Reform Act 2013, which followed the PCBS’s report, will impose a new senior banking managers’ regime (SBMR) from March 2016.
The regime will presume individual responsibility by permitting the PRA and the Financial Conduct Authority (FCA) to impose sanctions on those managers who cannot demonstrate that they took reasonable steps to prevent or stop a bank’s breach of a regulatory requirement.
The Banking Reform Act 2013 will impose a new criminal offence on individual senior managers who make reckless decisions leading to bank failure.
The FCA and the PRA are also jointly consulting on a similar senior insurance sector managers’ regime (SIMR).
The FCA has stated that “[w]ithin the regime, senior executives will be expected to take accountability for the conduct of the business for which they are responsible” (FCA in its publication, “FCA sets out approach to Non-Executive Directors and the Senior Managers Regime”).
There has been some alignment in the intended scope of the SIMR and the SBMR in that both will focus on non-executive directors with specific responsibility for areas or committees relevant to safety and soundness, i.e. chairmen, senior independent directors as well as risk committee, audit committee and remuneration committee chairs. Consequently, the SIMR will not impose criminal sanctions or a presumption of responsibility on “ordinary” non-executive directors.