Bank of England forced into u-turn by bankers’ human rights lawyers

Legal threats over human rights have led to a watering down of rules intended to punish bad bankers

Andrew Bailey has had to tweak new rules intended to hold bad bankers to account Credit: Photo: Paul Grover

The Bank of England had to water down plans to punish bad bankers after legal threats over executives’ human rights, it has emerged.

Andrew Bailey, deputy governor at the Bank and the head of the Prudential Regulation Authority, had wanted to make top bankers prove their innocence if something went wrong in their part of the business.

In the past, regulators have had to prove the guilt of misbehaving bankers, which has often been impossible as complicated business structures, unclear hierarchies and poor record keeping stopped the authorities proving who was to blame.

George Osborne, the Chancellor
George Osborne initially backed the presumption of guilt

Under the new rules, bosses will have to take responsibility for any wrongdoing in their department – such as reckless lending or criminal behaviour – but the burden will remain on regulators to prove that the executive failed to take reasonable steps to prevent it from happening.

Yesterday Mr Bailey admitted that lawyers’ concerns over bankers’ human rights potentially being breached - amid suggestions that the original proposals would make executives “guilty until proven innocent” - had convinced Bank officials to amend their plans.

“We are at risk of the noise quickly morphing into ‘guilty until proven innocent’ and you have a lot of lawyers going around talking about human rights legislation,” Mr Bailey told the Treasury select committee.

“Second… the test is, did they take reasonable actions to prevent this? My worry is, there is a tick-box mentality returning. That is not the point… and if it ends up that way [the new system] is not going to function.”

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John Mann is a long-serving and vocal member of the Treasury select committee

Instead, Mr Bailey said that the new regime is designed to get away from the tick-box system which existed before the crisis and instead should allow regulators to use their judgment.

By scrapping the presumption of responsibility, he says the Bank is ensuring it protects that ability to use its judgment.

At a separate hearing, Mark Carney, the Bank’s governor, echoed Mr Bailey’s sentiment, and said the new rules had morphed the discussion into “a legal one as opposed to the spirit of it which was a cultural discussion”.

However, Mr Carney said the Senior Managers’ Regime was unlikely to scare top talent away from London.

“I’m unaware of any specific instance where someone was hestitating because of their perception of the [rules],” he said, adding that bankers who were not prepared to take responsibility for failures on their watch should not be in those roles.

However, committee member John Mann accused the Bank of caving in to pressure from banks’ lobbying campaigns.

Mr Mann asked “why did you change your advice so dramatically in such a short period of time, when one can see the banks explicitly lobbying in public and through their lawyers in private?”

Mr Bailey rejected the idea that he is weakening the rules in response to the banks, arguing that if there are legal flaws in the plan, he has to make sure they do not become loopholes when the rules are implemented.

“I don’t want a regime which has a flaw in it which they can exploit,” he said.

“Like you, I see no reason in principle which the presumption cannot work, but I fear there is a flaw in it. I am not saying ‘lets water down the regime,’ I am saying lets change it so it has a higher chance of doing what we want it to do.”