HSBC Directors Quit In Protest At Jail Threat

By Mark Kleinman, City Editor

Two directors of HSBC's UK arm are poised to quit in protest at new Bank of England rules that pave the way for lengthy jail sentences to be imposed on senior managers of failed lenders.

Sky News can exclusively reveal that Alan Thomson, a member of the audit and risk committees of HSBC Bank plc, has tendered his resignation and will leave the board at the end of October.

John Trueman, the deputy chairman of the legal entity that manages the UK high street and commercial bank, is also understood to be on the verge of resigning, despite having only taken on that role in December last year.

Sources close to the situation said that the likely departures of both men were a direct consequence of Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) proposals to strengthen accountability for senior bankers.

A public filing about Mr Thomson's exit will be made by the end of the month, with a separate one about Mr Trueman following if his resignation becomes official.

The likely exits of the two HSBC directors over the proposed regulatory reforms has caused deep disquiet both there and among senior executives elsewhere in the sector, according to insiders.

They are the first bankers to have decided to relinquish their roles because of the impending regime.

"This is just the tip of the iceberg," said a lawyer close to another major UK bank.

Under proposals on which the PRA is consulting until the end of this month, bank directors and other top executives could face a new criminal liability if they were deemed to have taken reckless decisions which led to the collapse of their employer.

They would also be subject to disciplinary action from the City regulator for up to six years, twice the current time-limit, and be obliged to certify that all customer-facing staff and material risk-takers are competent to perform their duties.

Crucially, the new measures would be framed on a 'guilty until proven innocent' basis, according to lawyers, making it more difficult for bank bosses to clear their names if their organisation failed.

The PRA is also introducing new rules next year forcing bankers to defer bonuses for seven years from the point of award, creating the toughest pay framework of any global financial centre.

George Osborne, the Chancellor, pushed for the more stringent regime in the aftermath of the banking crisis and the conclusions last year of the Parliamentary Commission on Banking Standards, set up following the Libor rate-rigging scandal.

The resignations of the HSBC directors are, however, expected to throw the reforms into a sharper light at a time when bank boards are struggling to identify suitably qualified directors.

The PRA document published in June made it clear that the FCA would be responsible for oversight of banks' non-executive directors under a significant management functions regime.

On Monday, the PRA set out further details of its plans to ring-fence high street lenders from the same groups' investment banking arms by 2019.

This structural overhaul will entail banks recruiting separate boards for the different entities within their businesses, further increasing the need for individuals willing to serve as directors.

Mr Thomson and Mr Trueman, along with boardroom colleagues, are understood to have been briefed on the implications of the new rulebook by HSBC compliance staff in the weeks after the PRA and FCA outlined their regulatory framework at the end of July.

That explanation of the Senior Managers Regime is said to have prompted them to reconsider their roles as directors.

Mr Trueman is an experienced banker, having been a director of HSBC Bank plc since 2004 and previously the deputy chairman of SG Warburg.

Mr Thomson has a portfolio of jobs: since stepping down as finance director of Smiths Group, the FTSE 100 engineering business, he has become chairman of Hays, the recruitment agency, as well as Bodycote and Polypipe, two industrial groups.

HSBC's UK arm is the country's fourth-biggest lender, reporting a pre-tax profit of £3.3bn last year, and also manages some of its international assets in overseas markets.

HSBC and the PRA declined to comment on Tuesday.

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