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Calls for Inquiry Intensify as UK Regulators Consider weakening Senior Manager Accountability
Amid allegations of an establishment cover-up, UK parliamentarians, including prominent Conservative figure David Davis, are demanding an official inquiry into past events. This group asserts that the scapegoating of individuals was a consequence of “collusion” between financial institutions and the government. The willingness of authorities to pursue further investigations remains uncertain.
Considerably, UK legislation has evolved as the conviction of Tom Hayes. In 2016, UK regulators implemented the Senior Managers and Certification Regime (SMCR). This framework was designed to ensure that senior managers could not evade responsibility for firm-wide misconduct, leaving lower-level employees like Tom Hayes to bear the brunt of the blame.
However, the SMCR has demonstrated limited effectiveness. In the six years following its introduction,the UK Financial conduct Authority (FCA) initiated 53 investigations into senior managers. Only one enforcement action resulted in a accomplished outcome: a censure and fine against former Barclays CEO James ‘Jes’ Staley for mishandling a whistleblower complaint. Five years later, Staley was banned from holding senior financial positions due to making misleading statements about his association with the late convicted sex offender Jeffrey Epstein.
Furthermore, the Bank of England is currently consulting on proposals to dilute the SMCR. A review of the regime was initially announced at the close of 2022, with momentum for this change accelerating after UK Chancellor Rachel Reeves urged all UK regulators in January of this year to reduce red tape and stimulate economic growth. A trend towards deregulation is also evident in the United States.
There is a concern that Tom Hayes’s successful appeal could discourage the Serious Fraud Office (SFO) from pursuing similar prosecutions, particularly at a time when oversight of senior managers is slated for relaxation.
It would be imprudent for regulators to assume that financial scandals of the magnitude of Libor and benchmark rigging will not recur. The absence of a robust system for holding bankers accountable for misconduct during future crises could further diminish public confidence in the financial system. Financial authorities must urgently redouble their efforts to address the legal and regulatory deficiencies that have thus far allowed misconduct by bankers, especially senior management, to go unpunished.
Editing by kris Devasabai