New stringent compliance code scare the board of directors away
Global regulators will include banks' and insurers'
senior non-executives alongside chairmen in a tight new personal liability
regime. The result could be that the codex could deter the old school directors
from taking top roles in the industry.
The new code for senior administrators,
bankers and insurers could sanction and even jail the executives if things
go wrong on their watch. Th offence could bring in a potential criminal
liability under a new regime for reckless decisions causing a financial
institution to fail. However, it must be conclusively hard to prove, who
ultimately was responsible for the catastrophic decision.
The code reverses the usual burden of proof
In most countries, board members in financial institutions are vetted
and approved by the oversight authorities. The new rules require that
they even go thru an 'examination' process to prove that they have understood
the models and risks. This procedure will even bar many board members
to give up their seats.
The financial crisis proved that organisations did not ensure that they
had the right qualifications on the board people with the right skills.
Apart fro their skills the board members must demonstrate that they can
and are prepared to dedicate an appropriate amount of time to the vital
role.
Mis-selling, Libor-rigging and tax advice scandals
Compromise independence as a result of these regulatory changes will be
another issue to address before being offered the director's position.
The above code components are a part of an attempt to clean up the culture
in the financial services from the top down. I seems that many financial
institutions have already forgotten that the worst economic crisis in
a generation, followed by a string of financial scandals have tainted
the reputation.
High-profile enforcement actions
The situation may reduce the financial institutions attempt to expand
their scope of qualified applicants. There is a growing need for additional
qualified candidates since the code also requires the creation of separate
boards independent of the parent bank. However, if the law discourages
non-executives from joining the board of financial institutions, there
may be an even tougher demand for them across the industry.
The result of the financial crisis is that there is no equivalent criminal
offence elsewhere in the world, if companies that fail, the administrator's
top down can be criminally prosecuted for reckless mismanagement.
The codex will indeed bring for the a new generation of younger less experienced
director candidates.
However the global oversight authorities including the PRA and the Financial
Conduct Authority, believe that the new code will ensure success for well-governed
firms. That can only happen if senior managers know what is expected of
them, and they know how to run their businesses responsibly.
