Why the u.k. is making bank bosses pay for mistakes – bloomberg electricity vs magnetism venn diagram


Since 2016, the rules have required banks to clearly delineate each senior manager’s responsibilities. This has affected 30 to 40 people at each large bank, and 15 to 25 people at the U.K. branches of big European banks, says Jake Green, a regulation partner at law firm Ashurst LLP in London. The rules also apply to board members of U.K. units, including non-executive directors who may be based in New York, Tokyo or elsewhere. Banks must confirm annually that senior managers are “suitable” for their jobs. 5. So what’s the certification part?

Senior managers are responsible for certifying annually that a wide swath of staff are “fit and proper to perform their role.” This includes anyone who could potentially harm the public or the firm, as well as those who are high-earners or handle client money. It also includes proprietary traders (those trading securities for the firm’s own profit), as well as securities dealers and their supervisors. Green estimates that between 25 percent and 40 percent of employees will require certification. There are also personal-conduct rules, some of which apply to practically everyone in financial services, while others — such as the one about not going after whistle-blowers that Staley violated — apply only to senior managers. 6. What about the rest of the industry?

Insurers will probably be covered later this year. Other financial-services companies, from money managers that run billions of dollars to the smallest family offices, will follow in 2019 or early 2020. Eventually, more than 58,000 companies will need to follow the rules. The regulator has divided them into three categories. The largest will be subject to an “enhanced regime,” and will include the biggest banks, insurers and investment firms. They must have “responsibilities maps” that name the senior managers responsible for every area, activity and management function, and formal handover procedures for management changes. A second, or “core” layer, which will face a less onerous set of requirements, is expected to include most asset managers, consumer-credit firms and other vendors of financial services. The smallest, or “limited scope,” firms, including solo traders, vehicle dealerships, some not-for-profits, financial advisers and the like, will be subject to easier rules. 7. Are there drawbacks?

From the banks’ viewpoint, you bet. A major issue is documentation. Because managers must be able to demonstrate they acted correctly, a paper trail must exist — and it must be maintained. The banks complain that this has increased bureaucracy and skewed the culture so that employees act to cover their backs rather than in the interests of the firm. Industry-wide, the rules will cost about 550 million pounds to implement at first, and as much as 190 million pounds a year afterward, says the regulator. That’s on top of the cost in management time and external advice, says Michael Thomas, a financial-services partner at law firm Hogan Lovells in London. Regulators rebut such complaints by pointing to the cost to the public — and to financial-services firms — of misbehavior by employees. 8. What do managers say?