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Banking law: Parliament ponders proposal to ban disgraced bankers for life

The Treasury has this week published a consultation document on proposals to beef up the sanctions against bank directors for serious mismanagement.

The proposals come as the country and Parliament get to grips with yet another financial scandal which looks set to rock the industry to its foundations.

The Financial Services Authority (FSA) had already indicated to the Government that it felt the current available legislation did not do enough to hold directors responsible for their roles in banking scandals such as the financial crisis of 2007/8 and the current Libor crisis.

The Treasury proposals include provisions to change the system so that directors of collapsed banks would have to prove their suitability for future office to the FSA. At present, the FSA has to prove that a director acted improperly to prevent them taking up a new post.

The proposals also cover the creation of a criminal offence for serious mismanagement of a bank or financial institution. Lawyers have pointed out this week that securing any criminal prosecutions for the Libor rate-fixing scandal will be difficult if not impossible under the present law. The new law would punish negligence and recklessness in the running of a bank.

The head of the FSA Lord Turner told BBC's Andrew Marr this week that the present law would not allow the criminal prosecution of any of the bankers involved in Libor fixing.

"The situation on the law is that we have looked very carefully at what types of cases we are able to bring, and in this particular case of Libor, because it is not a qualifying instrument under the Act it is not covered by the criminal law," he told the BBC.

The new law would allow prosecutions to be brought against directors if it can be proven that they were negligent in allowing malpractice to continue or were reckless in the way they managed the bank.

Sources:

FSA calls for tighter laws against failing bankers (BBC)

'Fred Goodwin Law' is mooted to ban disgraced bankers for life (The Independent)