Jailing bankers for misconduct not the solution, says Law Society

Sending senior bankers to prison for reckless behaviour may not bring about the wholesale positive changes regulators expect, according to the law profession’s trade body.

The parliamentary commission on banking standards’ fifth major report, published in June, suggested that the threat of jail sentences would give bankers “pause for thought” when making important decisions.

MPs are currently debating the issue as part of the banking reform bill, and suggested on Monday that it could push forward legislation to impose custodial punishment for irresponsible bankers.

However, the Law Society, which represents solicitors across England and Wales, says such measures could stifle economic growth and put off experienced banking professionals from the top jobs, at a time when many banks need strong leadership.

Click here to read The Guide to Sustainable Banking 2012

“Introducing recklessness as the basis for an offence means that prosecutors will have to decide, possibly years after a business decision was taken, whether it was reckless or not at the time”, said chief executive Desmond Hudson.

“At a time when growth is vital for the UK economy, it’s important that we get the balance right between ensuring adequate risk control and stimulating business.

He added, “Business decisions will always involve a degree of risk; the commercial environment is unpredictable and, while a decision may be characterised as reckless with the benefit of hindsight, at the time it is taken it may be a perfectly reasonable course of action.”

To date, no one has been jailed for the £7.4 trillion that is estimated to have been lost because of the financial crisis.

Will Ferguson, communications officer at ethical bank Triodos, agreed that top officials ought to held accountable for their actions, but that some of the banking commission’s other recommendations were perhaps more crucial in the long-term.

He said, “Instead of focusing on how we plan to punish bankers the next time the system disintegrates, we need measures in place to prevent it from happening again.

“We should look to prevention – implementing the commission’s recommendation of higher leverage ratios, for instance – rather than relying on penal cure.”

The Law Society said it “continues to engage” with the parliament, as the banking reform bill passes through.  It is expected to be implemented in early 2014, and all banks headquartered in the UK would be obliged to adhere to its rulings.

Further reading:

‘Shocking and widespread malpractice’ should land bankers in jail, says commission

One responsible banking system to rule them all

There was criminality in the City – but not one prosecution

Big five’s banking monopoly at risk, with 2.4m closing accounts in 2012

The Guide to Sustainable Banking 2012