UK proposes to get tough on senior managers of foreign banks

Senior managers at Indian bank branches and non-banking finance companies in the UK will need to brace themselves for tighter regulation that are likely to be brought in next year.

The proposed regulatory regime, as outlined in a joint consultation paper by Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority, is designed to make senior management of banks more responsible and accountable in the UK.

According to the paper, if someone is in a senior management role, that person will be responsible for any regulatory violation, which occurs in their firm, unless the person can demonstrate that they took steps to avoid the violation.

The bank/ non-banking finance company must certify that its employees are not likelycause significant harm to the firm or its customers.

Among the Indian banks that operate in the UK are Bank of Baroda, Bank of India, State Bank of India and Syndicate Bank. These banks largely cater to the large Indian diaspora. SBI has the largest operations in the UK, functioning since 1921. Four Indian banks operate as subsidiaries — Punjab National Bank, Union Bank of India, ICICI Bank and Axis Bank.

The Indian non-banking finance companies operating in the UK include Exim Bank and IIFCL (UK).

According to the Bank of England, there are about 150 branches of international banks operating in Britain, accounting for 31 per cent (£2.4 trillion) of the total assets of the banking system.

Still in the consultation phase, the proposed regulation is required to be passed through legislation and the implementation date is yet to be decided.

According to a senior Union Bank of India official, the proposed regulatory regime is quite controversial and individual banks are worried as to how the UK regulator is going to use it.

If implemented, the regime could lead to criminal sanctions, and the fines and prohibitions will be at an individual level.

Bank of England has restricted retail business for branches of all foreign banks as it is worried about the credit controls, credit risk management and viability of the business model of banks.

In September this year, the PRA laid out norms that required banks from outside the European Economic Area to offer only minimal retail services. The authorities say they are comfortable with foreign banks in the UK to do more wholesale business but want want subsidiaries to do retail business as well.