Financial News

  • 21 July 2014, 20:19

BBA: City Sanctions Regime Needs Overhaul

Procedures for punishing bankers who breach City rules require urgent changes, including the option of "part-settlement" of cases brought by regulators, the banking industry lobbying group has said.

In a submission to the Treasury obtained by Sky News, the British Bankers' Association (BBA) accused financial watchdogs of lacking objectivity and transparency.

It said the Regulatory Decisions Committee (RDC), which scrutinises judgements made by the Financial Conduct Authority (FCA) should be reformed to guarantee its independence.

"There are ... questions about the extent to which the RDC can be said to be truly independent of the FCA's enforcement function," the BBA said.

"This raises doubts over whether the arrangements can be said to provide a true 'check and balance' on the enforcement function's powers."

The RDC could be replaced by a body which sits within the FCA but is autonomous, "possibly with a lay majority and a chair with senior judicial experience", the BBA added.

The BBA was responding to a review launched in May by George Osborne.

The Chancellor has made toughening the sanctions regime a priority as he seeks to demonstrate that the Government is intent upon punishing past miscreants.

In a speech last month, he said he wanted to make the manipulation of financial benchmarks such as the gold-fix and foreign exchange rates a criminal offence.

The Sunday Times reported that the Serious Fraud Office was poised to announce a criminal probe into alleged forex-rigging as soon as this week.

The consultation on the use of enforcement powers follows a string of cases involving prominent bankers.

"For enforcement action to be effective, wrongdoers must believe that they face a real and tangible risk of being held to account and must expect to face meaningful and proportionate sanctions," the Treasury said in May.

Some of the FCA's actions, such as a decision to fine Ian Hannam, a former JP Morgan executive, for inappropriately disclosing inside information, have faced criticism in the City.

Decisions by the FCA's predecessor body, the Financial Services Authority, relating to the near-collapse of HBOS also face scrutiny as part of a probe of the bank's troubles.

The BBA said in its submission to the Treasury that an appeals process and enforcement panel set up by the energy industry could provide a model for the financial services sector.

The lobby group also said the enforcement process could be accelerated, with additional communication with those under investigation desirable.

Under the current system, cases can only be settled in full, but the lobbying group insisted that introducing scope for part-settlement could "significantly strengthen decision-making".

The BBA added that actual rather than potential losses to consumers should be taken into account by regulators when calculating punishments, and said that the self-reporting of misconduct "could be given a more positive emphasis and better incentivised".

And it criticised regulators for their approach to enforcement actions, accusing them of requesting information whose "relevance...is not always immediately apparent".

It said the subjects of investigation were also frequently left in the dark about the detailed reasons underlying the probes.

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