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Banking Reform Act 2013, a good idea with poor implementation

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Another possible way of having a company director held liable

On 7 March of this year, section 36 of the Financial Services (Banking Reform) Act 2013 came into force.

It was designed to make senior employees of a financial institution liable if their decisions caused the business to fail or they failed to take steps which could prevent such a decision being taken.

So good so far, but (and usually there is a but) the implementation of the section 36 has been pretty poor so far. The new legislation is likely to have little if any effect.

When it comes to implementing section 36 two problems arise. Firstly, it has to be proved beyond reasonable doubt that the senior employee’s decision caused the business’ failure. Business failure is often down to a combination of factors. Proving that the business failure was due to a specific decision by a single individual is likely to be very difficult, if not impossible.

The second problem lies within the wording of section 36 (1) (c) which states “the decision falls far below what could reasonably be expected“. Why didn’t the Act delete the words “far below"? The person’s decision has to be assessed on what was known to her or him at the time.

I fear that these two problems will mean that section 36 is likely to be far less effective than it was hoped for.

By commercial debt solicitor, Declan Gilroy