Goodwin ‘may have been prosecuted’ under new plans

Former RBS chief executive Fred Goodwin. Picture: Neil Hanna

Mr Javid said it was “quite possible”, that had a new criminal offence for reckless misconduct in relation to the management of a bank been in place when Mr Goodwin was still at the helm of the bank, legal proceedings would have been made against him.

Labour’s Emily Thornberry had asked: “With hindsight, could you help the House: would Fred Goodwin have been prosecuted under this clause?”

Mr Javid replied: “It’s quite possible.

“But it’s very difficult to answer that question very specifically, because it would depend on a legal process as anticipated here.”

Setting out the Government’s plans to reform the banking system, in the wake of the 2008 financial crash, Mr Javid said: “The introduction of this offence means, that in future, those who bring down their bank by making thoroughly unreasonable decisions, can be held accountable for their actions; actions, which we have seen, can lead to severe economic disruption and considerable losses for taxpayers.”

The Conservative chair of the Parliamentary Commission on Banking Standards, Andrew Tyrie, warned against a retrospective and hypothetical application of this new offence.

“First of all, I think it would be inappropriate in order to try and assess the impact of this legislation on any specific case that has passed. And secondly, in any case, what we are trying to do is to devise legislation that is going to work for the future,” said Mr Tyrie.

He said instead that the Government should “emphasise, though, that we expect a change and improvement in behaviour as a consequence of much more considerable risks and responsibilities placed on those individuals”.

Mr Javid said that, as recommended by the Commission, the new offence would only apply to individuals covered by the Senior Managers Regime.

Speaking during the Financial Services (Banking Reform) Bill following its return to the Commons, after scrutiny by the House of Lords, he said: “Senior managers could be liable if they take a decision which leads to the failure of the bank, or fail to take steps available to them to prevent such a decision being taken.

“The offence will apply to behaviour which falls far below the standard that can reasonably be expected of a person in their position. A similar test, for example, that is applied in corporate manslaughter.”

The offence, which could result in a maximum jail term of seven years as well as an unlimited fine, will apply to senior managers both in banks and building societies, as well as investment firms that are also subject to Prudential Regulation Authority (PRA) supervision.

Mr Javid said: “This reflects the seriousness which this Government and society more broadly places on ensuring that our financial institutions are managed in a way that does not recklessly endanger the economy or the public purse.”