Banksters can sleep easy again

Politicians must back calls to criminalise reckless bankers by resourcing regulators and prosecutors 

Nicholas Cropp

Following every banking crisis over the past five years, there have been stern public pronouncements concerning the duties and responsibilities of bankers and the need for sweeping changes across the financial services industry. 

The political response to the -Libor scandal is no different. The Parliamentary Commission on Banking Standards recently published its post-Libor report, claiming its recommendations will change banking for good. While it is difficult to disagree with the policy pronouncements contained in the report, its substantive recommendations bear closer analysis.

The commission appears to be targeting much of its energies on extreme circumstances; for example, the position on deferred pay and pension entitlements when a bank requires taxpayer support which, the 2008 crisis notwithstanding, has happened only rarely in the past half century. 

The commission also calls for a new law criminalising reckless endangerment by senior bank staff, generating a greater degree of personal responsibility in the making of catastrophically bad decisions. 

US health and safety legislation, which allows public safety professionals to be prosecuted for taking decisions that endanger the public, could prospectively be the model for new legislation to criminalise such conduct.

In 2013, it is no stretch to describe banking as a high-risk activity that ought to impose certain levels of knowledge on its participants by definition, given the series of banking scandals that have rocked the financial services industry over the past few years. In practice, however, the main impact of such legislation may simply be to make senior bankers a little more risk-averse; such a law is unlikely to bite, save in extraordinary circumstances where devastating risks were obvious and clearly flagged in advance. 

Targeting these rare and potentially catastrophic scenarios, while laudable, is unlikely to create any significant changes in a bank’s day-to-day operations.

Though the Financial Conduct Authority’s supervision and enforcement priorities can rightly be criticised as being reactive and pol-iticised over the past decade, further layers of regulation won’t necessarily change the way its existing tools are deployed day to day.

What the report recognised as necessary, but can do little to change, is a variation in current investigative and enforcement strategies by government, regulators and prosecutors, to enable them to get out in front of problems such as Libor rate manipulation before they happen. 

But, in an era where access to justice is being decimated by an effective end to legal aid, police budgets are being slashed by 20 per cent, and the Serious Fraud Office retains a budget of a mere £35m for dealing with the complex Kaupthings and Libors of the future, providing resources and independence for regulators and prosecutors to combat problems such as Libor before they damage the public, as opposed to simply describing how important such resources are, does not appear to be a high priority for anyone.