UPDATE 1-BoE's Bailey says banker accountability rules not a "witch hunt"

May 21, 2015 8:20 AM

(Adds more detail)

By Huw Jones

LONDON, May 21 (Reuters) - New rules to make senior managers and board members of banks and insurers directly accountable for their actions are about increasing clarity, not witch hunts, Bank of England Deputy Governor Andrew Bailey said on Thursday.

Britain will roll out its new Senior Managers' Regime this year, seen by the BoE as an essential step to help pin responsibility for reckless behaviour on individuals.

Managers would have to demonstrate they were not aware of any wrongdoing on their patch if misconduct comes to light and banks have complained that it will put people off applying for top jobs.

"The key principle of that regime is to establish clearly appropriate responsibility for the governance of firms. Put like that, it is not meant to be radical or life-changing, despite whatever you may hear and read," Bailey told the Building Societies Association annual conference.

"Clarity of responsibility is I hope unobjectionable. But this is not clarity in the sense of facilitating witch hunts."

The BoE's supervisory arm, the Prudential Regulation Authority, which Bailey heads, published a consultation paper on Thursday on board responsibilities.

He said its message includes the need for boards to take collective responsibility for the firm's strategy, risk appetite and ethical behaviour.

Board members of banks have been criticised for not understanding some of the complex instruments being sold.

"Boards should include individuals with a mix of skills and experience that are up-to-date and cover the major business areas in order to make informed decisions and provide effective oversight of the risks," Bailey said.

Non-executive directors should ensure they have the time and resources to do their job, such as challenging executives.

"Through our supervisory work, we are seeing improvement but in our view there is more to do. Board effectiveness will therefore remain a key priority," Bailey said.

Britain's building societies sector was in a "good place" as regards to capital and liquidity, he added.

The PRA was, however, keeping an eye on margins which have come under pressure due to increased competition in the home loans sector despite very low interest rates on the funding side.

"Therefore, notwithstanding the news on interest margins over the last two years, we are watching this story carefully to see what happens next," Bailey said. (Reporting by Huw Jones; Editing by Hugh Lawson/Ruth Pitchford)