George Osborne has set out 86 amendments to the Treasury Banking Reform Bill due to come into effect in 2014. The Bill follows almost three years of consultation on the future of the UK’s financial sector and once completed will represent the biggest ever overhaul of Britain’s banking system, according to HM Treasury.
The amendments address four key areas of the banking system:
- supervision: the government has put the Bank of England back at the centre of the supervisory regime, with new powers to identify and address systemic risks as they emerge, ensuring safe banks that will not ‘bring down’ the economy in the future;
- structure: the government has brought forward new laws to separate the branch on the high street from the trading floor in the City to protect taxpayers when mistakes are made. In doing this the government is implementing the recommendations of the Independent Commission on Banking which it set up in 2010;
- culture: the government has announced that it will implement major reforms so that banks work for the economy and consumers; and
- competition: the government is aiming to empower consumers by giving them greater choice which should incentivise innovation and competition within the banking sector.
Along with a more stringent approval regime, the Bill introduces criminal sanctions for reckless misconduct by senior bankers, which could potentially result in a prison sentence.
The impact of the proposed sanction is likely to be minimal. Critical to its operation is that it can only be brought against a senior banker where it is believed their actions have led to the failure of a bank. This narrows the scope of the offence dramatically and such prosecutions are likely to be a freak occurrence.
Importantly, it is not anticipated that prison sentences will be imposed; it is more likely that the threat to one’s reputation of a prosecution will be the material concern to senior bankers under the legislation. The first report on ‘Changing banking for good’ by the Parliamentary Commission on Banking Standards suggests that prosecutions should only be considered in rare circumstances and pursued in cases
“involving only the most serious of failings, such as where a bank failed with substantial costs to the tax payer, lasting consequences for the financial system, or serious harm to customers… the credibility of such an offence would also depend on it being used only in the most serious cases, and not predominantly against smaller operators where proving responsibility is easier, but the harm is much lower.”
The day to day operations of the banking sector are unlikely to be affected by the ‘Sword of Damocles’ that HM Treasury proposes to put into effect, save to strengthen senior bankers’ resolve in conducting their business in the best interests of consumers and the economy.