Tough new regulations have come into force which will make senior bank staff personally responsible or criminally liable for the failings of junior staff.
Under the new regime, senior managers must complete statements of responsibility which set out their roles, and regulators will be able to demand improved evidence of oversight to show that “reasonable steps” had been taken to prevent, stop or remedy breaches.
However, Jon Gilligan, a partner for specialist employment law firm GQ Employment Law, said the senior managers’ regime, created by the PRA and FCA, could lead to managers pre-emptively dismissing staff they believed were putting the bank at risk of a regulatory failure.
The final rules of the senior managers’ regime were published in July following legislation which came out of the report by the Parliamentary Commission for Banking Standards, published in 2013.
Mr Gilligan said: “The risk is that managers will act in haste, and that unfair dismissal or constructive dismissal claims will follow.
“The FCA’s and PRA’s determination to create much more individual responsibility for any failures that occur in the banking sector is likely to cause considerable upheaval throughout the City and create significant tension between senior managers and banks’ HR and legal teams.
“Senior banking staff will not want to take the fall if an underperforming team member puts the bank at risk of regulatory action, but HR and legal will want to avoid unnecessary employment law claims.”
Right to reply
When the FCA and the PRA consulted on the new rules, PRA chief executive Andrew Bailey said: “Holding individuals to account is a key component of our job as regulators of banks.
“The combination of clearer individual responsibilities and enhanced risk management incentives will encourage individuals in banks to take greater responsibility for their actions.
“We believe that enhancing individual accountability and improving the alignment of risk and reward should have a positive impact on behaviour and culture within banks, and will help to ensure that they are managed in a way that promotes the safety and soundness of individual institutions.”