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Danger money

25 February 2015 By Dominic Elliott

New UK rules enabling the jailing of bankers could mean more pay for board directors. New reforms from the Financial Conduct Authority and the Bank of England could see those with oversight duties at banks and insurers donning prison scrubs if they screw up. More detail published by the FCA on Feb. 23 only marginally lightens the load.

It could have been worse. Good governance advocates had feared that the FCA would insist on holding the entire board accountable in the case of a major banking disaster. That might have scared off worthy candidates from outside the financial sector for good.

Now only those chairing risk, pay, nominations and audit committees will be on the hook alongside the board’s overall chair and senior independent director – about half of board members. So the hope remains that banks will be able to attract a diversity of experience to reduce groupthink.

Those accountable will be within their rights to demand more compensation, however. Increased regulation and public scrutiny already make sitting on a bank board more time-consuming than an equivalent role in non-financial sectors. Board pay reflects this to an extent: FTSE 100 financial services firms in 2014 paid premiums of 30 percent or more for the specific tasks of chairing audit and remuneration committees relative to other companies, research by PwC shows. Pay has also been on the rise for most board roles in the financial sector.

The Bank of England’s Prudential Regulatory Authority has attempted to allay concerns by using a series of examples to show that instances of negligence should be rare. Practically speaking, it’s only likely to happen if executives have walked the plank first. But it remains unclear whether former board members would still be deemed culpable if they had given up their duties and moved on. And if an employer or regulator opened a probe into potential wrongdoing, a board member could be out of a job for many months.

The chances of a non-executive director being prosecuted remain slim, and it’s not yet clear if foreign banks based in London will be targeted too – the FCA will decide next month. But board members will take some convincing. Banks may have to fork out more to secure their services.


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