Bank of England and Financial Services Bill — Misconduct — 19 Apr 2016 at 17:00

The majority of MPs voted to require regulators to show a senior manager in a financial institution has not taken reasonable steps to prevent a regulatory breach in their area of responsibility before considering them guilty of misconduct in relation to such a breach.

The alternative option, rejected in this vote, was to consider a senior manager in a financial institution guilty of misconduct if a regulatory breach occurs in their area of responsibility, unless they can show they had taken reasonable steps to avoid it.

MPs were considering the Bank of England and Financial Services Bill^[1].

The amendment rejected in this vote was:

• Amendment 8, page 20, line 10, at end add
• “and insert—
• ‘(6) Where the authorised person mentioned in subsection (5) is a relevant authorised person, as defined under section 71A of the Financial Services and Markets Act 2000, subsection (5)(d) does not apply and subsections (7) and (8) do apply.
• (6A) If the FCA satisfies itself that a person (P), who is a senior manager in relation to a relevant authorised person, is guilty of misconduct by virtue of subsections (5)(a)-(c), then P shall be guilty of misconduct, subject only to subsection (8).
• (6B) But P is not guilty of misconduct by virtue of subsections (5)(a)-(c) and (7) if P satisfies the FCA that P had taken such steps as a person in P’s position could reasonably be expected to take to avoid the contravention occurring (or continuing).”

The amendment^[2] would have added the above text to the end of clause 24 of the Bill^[2] titled Misconduct^[3] which itself provided for amendments to Section 66A of the Financial Services and Markets Act 2000

The Bill as it stood sought to consider a senior manager guilty of misconduct only if it could be shown:

• [(5)(d)the senior manager did not take such steps as a person in the senior manager’s position could reasonably be expected to take to avoid the contravention occurring (or continuing).”

and to omit the following clause, where P is such a senior manager:

• (6)But a person (“P”) is not guilty of misconduct by virtue of subsection (5) if P satisfies the FCA that P had taken such steps as a person in P’s position could reasonably be expected to take to avoid the contravention occurring (or continuing).

The explanatory notes accompanying the Bill^[4] explain the intent of the relevant part of Clause 24 to have been to move the burden of proving reasonable steps had been taken to avoid a regulatory breach happening from a manager responsible for an area where a breach had occurred to the regulators, who, to find a manager guilty of misconduct, would be required to prove reasonable steps to avoid the breach happening were not taken.

The amendment would have replaced the omitted subsection (6) above with the text in the amendment.

Subsections (7) and (8) of section 66A refer to define “senior manager”, “designated senior management function”, “approved person” and "employee".

Under Section 66 of the Financial Services and Markets Act 2000 the Financial Services Authority has powers to act against those deemed guilty of misconduct.

Speaking during the debate prior to the vote MP Richard Burgon explained the reasoning behind the rejected amendment which would have kept the burden of proof on senior managers to show they had taken reasonable steps to avoid a regulatory breach happening in order to avoid being deemed guilty of misconduct if a regulatory breach occurred in an area they were responsible for. He said^[5]:

• The presumption of responsibility, as currently set out in legislation, applies to senior managers. It means that to avoid being found guilty of misconduct when there has been a regulatory contravention in an area for which they are responsible, they will have to prove that they took reasonable steps to prevent that contravention. This Bill removes that onus on senior bankers. The onus is entirely reasonable, proportionate and, as bitter experience tells the British people, necessary. Misconduct and misdemeanours in financial services are not merely a tale from history.

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• [1] Parliament's webpage on the Bank of England and Financial Services Bill (now an Act)
• [2] Page of amendment paper containing this amendment
• [3] Version of the Bill to which the amendment relates, PDF required for applicable page numbering.
• [4] Explanatory notes to the Bank of England and Financial Services Bill, Commentary on Provisions of the Bill
• [5] Richard Burgon MP (Labour, Leeds East), House of Commons, Official Record, 19 April 2016

Debate in Parliament |