UK banks face challenge in hiring directors amid industry revamp
New board roles under an industry revamp will hold executives accountable for misconduct
Britain's major lenders may find it hard to hire dozens of directors that are required as part of a radical reshape of the industry aimed at protecting it from future investment bank crashes.
The country wants banks such as HSBC Holdings, Barclays and the British arm of Spain's Santander to ring-fence their retail units from their wholesale operations, including creating a separate board for their retail divisions that will be independent of the parent group.
But the banks may struggle to fill these boards because the directors will be more exposed if things go wrong, particularly under new rules that will make it easier for the regulator to hold senior bankers to account for misconduct.
"It may be hard to find directors for these ring-fenced banks," said Simon Gleeson, a partner at British law firm Clifford Chance. "You're practically volunteering for the role of scapegoat."
Britain wants to make directors more accountable and responsible for their actions, aiming to prevent a repeat of the 2007-09 financial crisis when taxpayers spent tens of billions of pounds bailing out major banks whose directors walked away with their pensions intact.
"We should be under no illusions: finding enough people with the appropriate experience who are not tainted by the financial crisis and who are willing to take on the extra responsibility and culpability will be challenging," said Omar Ali, head of British banking and capital markets for consultancy EY.
Any bank with £25 billion (HK$311.7 billion) of British deposits will need to set up a ring-fenced unit by 2019 and have to submit preliminary plans to the Bank of England by January 6 next year.
At present, six firms would need to do so: HSBC, Lloyds Banking Group, Barclays, Royal Bank of Scotland, Santander UK and the Co-operative Bank.
Another batch of lenders have deposits of almost £25 billion and potentially be above that level by 2019, including TSB, Virgin Money, National Australia Bank's British operations and Williams & Glyn, a business being spun out from RBS.
That could leave seven or eight ring-fenced banks, each with a board of eight to 12 people, industry sources said, meaning more than 60 people could be needed to fill the positions, including 40 non-executives.
"They need to find more people to do this at a time when some people think the risk-reward has tilted against non-executives, so you may find a situation where supply has gone down at a time that demand has gone up," said Clifford Smout, Deloitte's co-head for regulatory strategy in Europe.
Sitting on the board of a ring-fenced retail bank will also open the director to conflicts of interest between their obligations to the ring-fenced bank and the wider group. They are also faced with a conflict between their obligations to the regulator under the ring-fencing rules and to shareholders under English corporate law.
"You have got a set of rules coming in which can never satisfactorily resolve that conflict of interest," said Bob Penn, a partner at law firm Allen & Overy.
