The banks have certainly borne the brunt of people’s anger during the financial crisis; whether from SMEs with lending frustrations, or public outrage at the PPI and interest rate swap scandals, the denizens of the City have copped a kicking. It would appear that the government hasn’t been particularly impressed with the behaviour of some of the banking sector’s top brass either, and the fruits of this frustration were unveiled last month. The long-awaited fifth report by the Parliamentary Commission on Banking Standards put forward some rather explosive recommendations, not least that bankers should be jailed when their behaviour amounts to gross misconduct. The report proposes that this be measured against a set of clear personal responsibilities assigned to senior bankers, who should also adhere to a new range of banking standards set by regulators. In addition, it advocates deferring bankers’ bonuses by ten years in the event of misconduct – a measure that would probably garner support in many quarters – and suggests that banks should be legally obliged to prioritise financial safety over shareholder interests.
Heavy stuff indeed, and at 571 words, we are only scratching the surface of the report here. Nevertheless, there is a little doubt about what proposal stands out above the rest in terms of controversy. Do people in the business world agree that bankers should be locked up for reckless behaviour?
“Recklessness is wilful blindness,” says Paul Moore, HBOS whistleblower and non-executive chairman of Assetz Capital Group
Being reckless is worse than just being careless, it is wilful blindness. If you can go to prison for stealing a water bottle in a riot, why shouldn’t you go to prison if, through your recklessness, you drive 37,000 people out of a job, cost the taxpayer £20 billion, and incur loan losses of nearly £47 billion?
The best example is what HBOS and Royal Bank of Scotland did. That is absolutely failing to take account of what was completely obvious. Firing a chief risk officer when they raise a legitimate challenge is more than just reckless; it is deliberate and should be dealt with. In order for a bank to work properly, you have to have a separation and balance of power so that the engineers of the organisation can make it clear to the driver that if they carry on that way, they will blow the engine up and run out of petrol.
There is already a criminal offence in section 397 of the Financial Services and Markets Act 2000 that should be applied to the misselling of PPI, interest rate swaps and Libor manipulation. So there should have already been a criminal investigation.
“Prison terms are unlikely to solve all the problems,” says Richard Webber, director of the financial services practice at Twenty Recruitment Group
While it’s clear that changes do need to be made to prevent scandals in the banks from happening again, threatening bankers with jail is unlikely to solve all the problems. There’s no doubt that a jail sentence for human error is likely to put off many individuals from working in the sector, meaning that top talent could be lost.
The front office has always been the attraction with many very bright professionals accepting back and middle office positions in order to get there – few make it, which means you have some pretty good people in the middle office. However, if the promise of the golden goose is suddenly replaced with possible criminal charges, we may find the entry level supply-and-demand curve suddenly reverses.
However, on the flip side, we are seeing positive impacts around the introduction of the new offence. There will inevitably be a rise in opportunities for compliance professionals, for instance in the client assets sector, which deals with the segregation of client money. Not only is there a great need to comply with the regulatory framework, but so few people have experience of it, meaning that there are rich pickings for specialists in this area.