Lawyers slam bank jail plan

Tim Wallace
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LAWYERS last night slammed George Osborne’s plans to jail bankers deemed to have behaved “recklessly”, arguing that the idea will be difficult to translate into law, and could hurt the economy by stopping bosses from taking useful risks.

Government advisers are already believed to be struggling with a definition of what counts as reckless behaviour, and how the rule could be enforced.

One way to get around the problem would be to reverse the burden of proof, so the heads of bailed-out banks must prove their innocence, rather than prosecutors prove their guilt ­– a proposal that lawyers say is an attack on the justice system.

“Reversing the burden of proof is slightly stomach turning. I would be surprised if that got through – shoving blatant injustice into primary legislation is rarely successful,” said Simon Gleeson at Clifford Chance.

The Treasury’s plan comes in response to the Parliamentary Commission on Banking Standards (PCBS) which last month demanded more accountability for bosses. The rules will be debated in the autumn, though there may be trouble defining exactly who is targeted.

“Proving someone behaved recklessly is very hard, things like greed and incompetence come into it,” said a government source. “And it is tricky to draw the line between incompetence and recklessness.”

If the rule is passed, lawyers expect damaging unintended consequences.

“Why would any competent person agree to accept senior office in a bank when, uniquely in Europe and most other advanced economies, they are faced with a series of loaded disciplinary mantraps?” said Simon Morris from CMS Cameron McKenna.

“These proposals could potentially have a dampening effect on positive and beneficial risk-taking”

The Treasury has also asked watchdogs to look at a proposal to defer bonuses for up to 10 years. But it is thought Osborne prefers a delay of three to five years, with bonuses paid in shares linked to the banks’ fortunes.

The Bank of England must also now promote competition, and current account numbers may become portable between banks. Big banks could be forced to give up control of the payments system, to end the setup where small banks pay big rivals to settle payments.