LONDON (Reuters) - The prospect of cash rewards won’t prompt more bankers to step forward and blow the whistle on wrongdoings that could put their institution at risk, a top UK enforcement official said.
Tracey McDermott, director of enforcement at the Financial Services Authority, came under heavy attack from lawmakers for failing to send a top banker or board member to jail after taxpayers had to rescue lenders in the 2007-09 financial crisis.
“In relation to large institutions, it has proved extremely difficult to get at the people at the top,” McDermott told the parliamentary commission looking into banking standards.
“We need to ensure people do not only get the upside but suffer some of the downside. We have not been able to hold them to account ... We are in for the long haul.”
The commission will recommend legal changes to make it easier to pin the blame for bank failures on individuals.
“We want individuals prosecuted,” the commission’s chairman Andrew Tyrie told McDermott, adding that the “big fish” were simply swimming past the regulators.
“Is there regulatory deference to senior executives and board members?” asked Susan Kramer, another commission member.
The commission pointed out that U.S. financial regulators gave whistleblowers cash rewards but McDermott said this practice was relatively new.
“We don’t think there is a case made out for giving financial incentives for whistleblowers,” McDermott said.
The FSA has begun requiring banks to name an individual who will be responsible for making changes it has requested.
“We want somebody to be on the hook for taking remedial action. It is a step towards making people more personally accountable,” McDermott said.
The watchdog could also put far more pressure on people to fulfil their existing duty to tell regulators if they see a problem, she added.
The FSA wants powers to impose interim bans on people they believe are not “fit and proper”, so they cannot continue working for years until the case against them is completed.
McDermott also wants to be able to fine any employee of a bank - a power currently limited to “approved” staff in key jobs. Other changes could include reversing the burden of proof so that a banker would have to prove they were not culpable.
The FSA is being scrapped and its powers divided between two new regulators on April 1 - a standalone Financial Conduct Authority where McDermott will head enforcement, and a Prudential Regulation Authority at the Bank of England.
Graham Nicholson, the bank’s chief legal adviser, said the PRA will be ready “on day one” to take enforcement actions.
He rejected suggestions the bank could be subject to “regulatory capture”, meaning it is too close to the industry it supervises. McDermott rejected a similar charge against the FSA.
“The culture of the bank is pretty robust in that regard,” Nicholson told the commission.
Reporting by Huw Jones; Editing by Helen Massy-Beresford