Ever since George Osborne's Mansion House speech in June 2015, commentators have been queuing up to argue that "banker bashing" is coming to an end. With the recent announcement of Andrew Bailey as the new head of the Financial Conduct Authority (FCA), it is an appropriate time to consider whether the banker bashing era really is ending.

Banks are governed by UK Parliament, the Treasury, the FCA and the Prudential Regulation Authority (the PRA). Recent actions by these bodies indicate a softer approach towards banks. These include:

  1. Martin Wheatley's resignation: George Osborne decided not to renew Mr Wheatley's contract as the head of the FCA which prompted Mr Wheatley to resign in July 2015. Mr Wheatley was recognised as a tough regulator who famously said that his approach at the FCA would be to "shoot first and ask questions later";
  2. Amendments to the Senior Managers Regime (the SMR): The SMR (described below), was initially drafted so that the senior managers of certain institutions (including banks) had the burden of proving that they had taken all reasonable steps to prevent a breach from occurring/continuing, when under enforcement action by the FCA or PRA. This "Presumption of Responsibility" was subsequently removed by Parliament in a draft bill published on 15 October 2015; and
  3. Key investigations dropped: along with dropping the FCA review into the culture at retail and wholesale banks (December 2015), in January 2016 the FCA announced that it would not take formal action against HSBC, whose Swiss arm was alleged to have helped wealthy individuals evade tax.

Although these events suggest a softer approach to banking regulation, it doesn't necessarily mean that banker bashing is over. A second interpretation is that this approach is seeking to shift responsibility from banks to individual bankers. This would create an altered, but still very real, form of banker bashing.

Support for this assertion can be found in George Osborne's Mansion House speech. In particular he said that he wanted: "UK financial services [to be]… the best regulated in the world, with markets of unquestioned integrity and the highest standards of conduct". 

Finally he concluded that:

"The public rightly asks why it is that after so many scandals, and such cost to the country, so few individuals have faced punishment in the courts… The Governor and I agree: individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals they are – and they will be”.

It is noteworthy that this speech preceded all of the above events.

The Senior Managers Regime

The implementation of the SMR, which came into force in March 2016, provides the most compelling evidence for such an approach being adopted.

The SMR will place responsibility on senior managers (essentially, executive and non-executive board members) in banks and other institutions to ensure that the employees they supervise abide by the rules. The SMR also requires senior managers to sign a Statement of Responsibilities setting out the responsibilities of that particular senior manager therefore making it easier for the FCA to bring enforcement action against them.

Ultimately, senior managers will be more accountable for the action of employees under their purview. This should incentivise senior managers to ensure that the culture that they are implementing is appropriate and provides sufficient safeguards for retail consumers.

Certification Regime and new Conduct Rules

The Certification Regime (the CR) and new Conduct Rules (the NCR) came into force in March 2016. The CR requires individuals who perform certain functions to be certified by their employer as fit and proper to carry out the certified functions. The NCR is a new framework of behavioral standards in which individual conduct will be judged. Under the NCR, both senior managers and certified persons may face disciplinary action by the FCA or PRA. 

This provides the FCA and PRA with far greater powers to discipline a larger number of individuals, increasing individual accountability. This further indicates a subtle change of focus from banks to individual bankers. 

Conclusion

All in all, it is clear that there has been a change of approach to banks' regulation. It will be interesting to see how this develops with Andrew Bailey at the helm of the FCA. Mr Bailey has already distanced himself from Martin Wheatley by saying that he won't shoot first and ask questions later, although it remains to be seen what his approach will be. 

Whilst there are indications that the banker bashing era of yesteryear is coming to an end, it is possible that what was known as banker bashing was actually bank bashing and the true era of banker bashing is only just beginning. If this is the case, then we may be about to see a far more effective way to bash the banker.