Newsletter | Volume 1

Issue I
Issue II
Issue III
Issue IV
Issue V
Issue VI
Issue VII
Issue VIII
Issue IX
Issue X
Issue XI
Issue XII
Issue XIII
Issue XIV
Issue XV
Issue XVI
Issue XVII

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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.