New city watchdog to be given powers to ban and fine bankers blamed for financial crisis

By James Salmon

Plans to give the new City watchdog beefed up powers to ban and fine disgraced former bankers blamed for the worst financial crisis in living memory are expected by the end of the month.

The news will offer hope to millions who have suffered as a direct result of the crash and want the executives at banks bailed out with billions of pounds in taxpayers’ money to be held to account.

The Treasury is expected to outline a series of measures, which could include enabling the Financial Conduct Authority – which will replace the Financial Services Authority next year – to ban former bank bosses for the reckless decisions which led to the near collapse of Northern Rock, Royal Bank of Scotland and HBOS.

New measures: The Financial Conduct Authority is to be given powers to ban and fine former bankers blamed for the financial crisis

It follows the failure of the FSA to satisfy a thirst for justice, with just three disgraced former bank bosses hit with a ban since the collapse of Northern Rock in 2007.

The proposals come as Business Secretary Vince Cable decides whether to go after the former bosses at Royal Bank of Scotland, which was bailed out with £45.5billion of taxpayers’ money in 2008.

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A report, prepared by lawyers on his instruction, is expected to find there is ‘prosecutable evidence’ against former RBS chief Fred Goodwin and his cohorts, including former investment bank boss chief Johnny Cameron.

It is understood that Cable has yet to be presented with the legal advice, which is thought to contradict the verdict given by the FSA just six months earlier.

Cable consulted lawyers after the regulator’s widely criticised report into the collapse of RBS in December, which ruled it could not take action against any of the bankers responsible for its demise, despite unearthing new details of their reckless decision-making.

This included revelations about how the board rubber-stamped the disastrous takeover of basket case Dutch bank ABN Amro without conducting the proper checks.

One memorable finding was that the information given to RBS by ABN Amro amounted to just ‘two lever arch folders and a CD’. But the regulator concluded there was ‘not sufficient evidence to bring enforcement actions which had reasonable chance of success in Tribunal or court proceedings’.

Realising his decision would disappoint a bloodthirsty public, FSA chairman Lord Turner bemoaned the regulator’s lack of powers and promised to bolster them.

Summarising these limitations, he said: ‘The fact that a bank failed does not make its management or board automatically liable to sanctions.

‘A successful case needs evidence of actions by particular people that were incompetent, dishonest or demonstrated a lack of integrity.’

He added: ‘Errors of commercial judgement are not, themselves, a sanctionable offence.’

He then unveiled plans to increase the regulator’s powers, including a ‘strict liability’ approach, whereby former bank bosses can be punished for poor decisions, not just breaching the FSA’s rules or breaking the law.

Critics say reports that lawyers are telling the Government there is enough evidence to prosecute former RBS directors highlights the abject failure of the watchdog to hold those responsible for the crisis to account.

Paul Moore, the former director at HBOS who blew the whistle on reckless lending practices, said: ‘It’s a scandal. ‘It is perfectly obvious the FSA should have taken enforcement action against key directors at RBS and HBOS.

‘In the RBS report it is also absolutely clear it took no independent legal advice as to whether action could be taken against former RBS directors.

‘The FSA is clearly worried that these directors will say in their defence, “you knew what we were doing and you let us do it”. There is a clear conflict of interest.’

Almost five years after the collapse of Northern Rock, just three bankers have been fined and banned from working in the industry.

Johnny Cameron, a key lieutenant of Goodwin at RBS, agreed not to take on another major role in the industry, thereby escaping further sanction.

But the ban hasn’t stopped Cameron from enjoying a lucrative part-time consultancy role with investment banking specialists Gleacher Shacklock. David Baker, the former deputy chief executive of Northern Rock, was fined £504,000 and banned for misleading investors about the number of bad loans on its books.

His colleague Richard Barclay was fined £140,000 and banned – also for failing to ensure accurate financial information.

A clutch of other executives such as Goodwin and Peter Cummings, head of the reckless lending at HBOS which culminated in it being rescued by Lloyds in 2008, have escaped censure thus far.

Some, such as former HBOS boss Andy Hornby have secured prominent City jobs. He is chief executive of bookmaker Coral, having quit Alliance Boots with a £2.4million pay off.

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