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The Director of Enforcement at the Financial Services Authority, Tracey McDermott, appeared before the Andrew Tyrie and the Parliamentary Commission on Banking Standards to answer questions about the FSA’s strategy and approach to dealing with banks and bankers who have stepped afoul of legal standards.
One of the leading concerns of Tyrie’s commission was why the FSA appeared to be “a toothless tiger with respect to the senior executives” of delinquent firms. He said that “I’ve been told that its easier to get at the little guys,” a claim with which Ms. McDermott agreed.
Ms. McDermott said that “In relation to large institutions, it has proved extremely difficult to get at the people at the top. We have not been able to hold them to account.”
Tyrie countered that “We want individuals prosecuted.” He said that it appears that the big fish are swimming right by the regulators. Another commission member flat out asked “Is there regulatory deference to senior executives and board members?”
McDermott agreed that “We want somebody to be on the hook for taking remedial action. It is a step towards making people more personally accountable.” The FSA has begun requiring banks to name individuals who will be held accountable for remedial changes.
She added that the FSA is considering imposing interim restrictions on employees the Authority deems “unfit” – a euphemism for “crooked” – that would prevent them for working until any case against them is closed. The FSA is also considering requiring a bank to carry the burden of proof by having to substantiate that it was not guilty of alleged wrongdoings.
Okay. That’s the news. Now here is my take on the situation. First of all, these actions may be too little too late. I’m sure that most taxpayers would agree with that. Second, I have to wonder how assigning responsibility to a named individual changes the assignment of blame to a corporate executive, unless the named individuals are, indeed, at the executive level. But then one wonders how that differs from an organizational chart and job descriptions. Is that not their purpose?
It’s going to take keeping a closer eye on the bank through scrutiny and auditing. Even then, no executive is going to be indicted without real proof that they were directly involved in any nefarious scheme. Perhaps Parliament and the FSA should consider legislating a punishment for incompetence if a top executive claims ignorance of illegal operations within his company.
The skill of denial culpability has been a tool of the elite for centuries, but it has been honed to a fine art in the modern era of business. This writer has personally witnessed situations where maintaining denial culpability was the highest issues on an executive’s agenda. To the extreme it can evolve into a undocumented leadership – that is, no paper trails or e-trails that lead to the corner offices. It is a practice that can lead to the corporate demise of anyone at anytime at any place on the corporate ladder, regardless of guilt or innocence.
If these are the kind of people that the FSA or its successor, the FCA, expect to catch in their misdeeds, it’s going to be, as Ms. McDermott said, “a long haul.” Perhaps these initial steps are heading in the right direction.
