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UK Chancellor Jeremy Hunt introduced the “senior managers’ regime” – rules introduced in response to the 2008 financial crisis that made senior bankers “panicked” and held personally liable for breaches on their watch.
Hunt will announce the review of the system as one of 30 reforms to financial services regulation to begin in Edinburgh on Friday, according to people briefed on the plans.
The regime has since 2016 forced senior executives at banks, building societies and credit unions to take personal responsibility for breaches if they did not take “reasonable steps” to prevent them. Penalties range from fines to bans.
New laws were simultaneously introduced that made it a criminal offence, punishable by up to seven years in prison and unlimited fines for lenders and senior managers of large investment firms to commit bank failure.
Ministers have stressed that Hunt’s “Edinburgh reforms” will not mark a return to the risky practices that contributed to the 2008 crash and that Britain’s regulatory framework will remain tough.
An aide to the chancellor said the regime of senior managers was seen as too harsh and would be reviewed. “We will introduce a flexible but proportionate regulatory framework,” he said. “But we will maintain the high standards for which we are known around the world.”
Described by the Bank of England as “a crucial element of the post-crisis reform agenda”, the regime of senior managers was designed to ensure bankers had “nowhere to hide” for failure on their watch, as the public perceived a lack of it. Liability for a collapse costing taxpayers billions of pounds.
Hunt will say on Friday that the regime will be reviewed by regulators and the government early next year, according to people familiar with the matter.
The Treasury declined to comment.
By the end of 2019, the rules had been extended from covering UK lenders to more than 47,000 companies across the City of London.
But while the financial services industry hailed the regulations as a dead hand on recruitment, enforcement has so far been sparse.
In one of several fines issued by regulators, Barclays’ then chief executive Jess Staley was fined £640,000 in 2018 for trying to expose the identity of an anonymous whistleblower.
Some of the key proposals in the Edinburgh reforms will seek to remove some of the more restrictive features of the rules put in place after the 2008 crash, including the relaxation of “ringfencing” rules for banks.
Hunt has already announced the removal of caps on bankers’ bonuses and will also order a review of Mifid II, an EU law that seeks to strengthen protections for investors and transparency in financial markets.
City executives have long complained about the red tape imposed by post-crash regulations, but they have also revamped their businesses to cope with the demands. Such restructuring means that any changes in regulations may take some time to change the way banks and corporate brokers operate.
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