Bank directors, shareholders and regulators - Irreconcilable differences?

Bank directors, shareholders and regulators - Irreconcilable differences?

Welcome to the latest article in the the Journal of International Banking and Financial Law series -  

"Irreconcilable differences? Bank directors, shareholders and regulators"

2014) 10 JIBFL 623 1 November 2014).

Written by James Palmer, Hywel Jenkin,  Barney Hinnigan are partners at Herbert Smith Freehills LLP, all members of its multi-disciplinary financial services corporate governance team

This article explores the difficulties faced by bank directors in balancing company law and regulatory requirements.

KEY POINTS

  • Directors must comply with both company law and regulatory duties.
  • In light of the increased focus on individual accountability for regulatory compliance, firms and individual directors will now more than ever be focused on navigating a path which facilitates compliance with both regimes.
  • Firms should not be afraid to challenge regulatory requirements where it is necessary to achieve this.
  • Additional complexities arise for cross-border banks and their management, as they will need to take account of both home and host state requirements and expectations.

INTRODUCTION

Those tasked with governing UK banks have always faced difficulties in balancing competing interests. This stems in part from the fact that banks must be operated in accordance with both company law and applicable financial services regulation. The two regimes do not always operate in a clearly integrated and consistent manner. Banks are also among the largest and most complex organisations, which adds to the practical challenge of governing them effectively, particularly when they are run on a cross-border basis.

Consumer protection is a fundamental aim of conduct regulation in the UK. It is expressly recognised in the operational objectives of the Financial Conduct Authority and the Prudential Regulation Authority seeks to protect the markets as a whole (and thus consumers), by promoting the safety and soundness of firms. Short of insolvency, company law does not overtly seek to protect customer interests in the same way: the focus is on the relationship between the company, its management and its shareholders. Company law does, of course, recognise the need for boards to comply with separate legal and regulatory regimes applicable to the

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