When the Music Stops – Holding Bank Executives Accountable for Misconduct

In a recent paper entitled "When the Music Stops – Holding Bank Executives Accountable for Misconduct," Rita Oliveira, Ruth Walters, and Raihan Zamil of the Financial Stability Institute review the evolution of individual accountability frameworks since the Global Financial Crisis.

Reviewing accountability regimes in six jurisdictions, the paper identifies two main approaches: establishing a formal, standalone Individual Accountability Regime (IAR) and utilizing a broader, more distributed regulatory framework.

Examples of countries that have established free-standing IARs are the United Kingdom (the Senior Managers and Certification Regime), Australia (the Banking Executive Accountability Regime), and Singapore (the Guidelines on Individual Accountability and Conduct). While there are differences between these regimes, they share a few core features:

• They focus on senior managers ("covered individuals");
• Firms are required to define and allocate responsibility; and
• Covered individuals can be held accountable for failings in their areas of responsibility unless they have taken "reasonable steps" to prevent them.

Conversely, jurisdictions that employ a more patchwork-like approach to accountability are the United States, the Hong Kong SAR, and the European Single Supervisory Mechanism (SSM). These approaches vary significantly but have all adopted a broad range of regulatory and supervisory mechanisms to hold individuals to account.

The report concludes that, regardless of the approach taken to accountability, enforcement must be on the table to ensure firms internalize a culture of accountability. "Even if the main purpose of an IAR is to improve firms’ governance and management behaviour, the threat of enforcement needs to be credible to prevent firms from adopting a checklist approach," the authors write. "Whether an IAR is in place or not, authorities should have a wide range of tools, for both preventative supervisory actions and proportionate sanctions following a breach."

Starling recently published "The Era of Accountability," a Deeper Dive supplement to our 2022 Compendium, which discusses the global push from regulators, politicians, investors, employees, and the public to hold corporate leaders accountable for the (mis-) management of culture and conduct risks. This Deeper Dive is only available here on Starling Insights.