Lloyds Boss Joins Ranks Warning On New Rules

By Mark Kleinman, City Editor

The boss of Lloyds Banking Group has become the latest heavyweight figure to raise concerns about the impact of impending industry regulation, warning that a proposal to force bankers to prove they were not liable for major failures risks "incentivising people to do nothing".

Speaking to Sky News, Antonio Horta-Osorio said he supported the bulk of the proposals outlined last week by City watchdogs to strengthen accountability in banking, including seven-year clawback periods for bonuses and a new annual MOT to verify the propriety of bank employees.

He warned, however, that reversing the burden of proof for bankers risked being economically counter-productive at a time when financial institutions are under intense pressure to support the growth of the wider economy.

"I welcome the clawback proposals in principle. I have always believed that bonuses for senior managers should be linked to results, deferred for significant periods so that they can be potentially clawed back at a later date and that they should be made in shares to align the interests of management with those of shareholders," the Lloyds boss said.

He also agreed with the Parliamentary Commission on Banking Standards that the approach to enforcement within the UK should be reviewed.

"Enforcement and fines have an important role as a credible deterrent against future misconduct.

"But the new rules will potentially reverse the burden of proof where individuals are guilty until they prove themselves innocent in the eyes of the regulator.

"I worry that this could incentivise people to do nothing, as they could waste their time trying to create a paper trail rather than doing what they should be doing, focusing on customers.

"Secondly everyone makes mistakes. If you do a major thing wrong like causing the failure of a bank you should be held accountable for the decisions that you made. But we need to separate the major mistakes from the small ones which will always happen.

"Under the proposed rules we will run the risk that people spend their time avoiding accountability as they fear being prejudged as guilty when they get something wrong. We want to make sure that bankers, like any other profession, operate to the highest standards but we have to be fair in how we judge them."

Mr Horta-Osorio's remarks, which came days after Lloyds was fined more than £220m for manipulating the benchmark interest rate Libor, echo those made by Douglas Flint, chairman of HSBC.

Mr Flint said staff were becoming risk-averse because of potential regulatory consequences.

"We are in a business that manages risks and we have got to avoid getting to a state where people believe that there is a zero risk tolerance," he said on Monday.

"There certainly isn't within the firm. We expect to take risks which means we expect some outcomes to be adverse to your expectations but I think within the firm there are those who believe that our regulators in some cases have less tolerance for poor outcomes."

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