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By Huw Jones
LONDON, Oct 16 (Reuters) - Britain's banks are over-reactingto rules aimed at making senior officials accountable forbreaches in rules or procedures which happen on their watch, atop regulator said on Thursday.
Bank of England (BoE) Deputy Governor Andrew Bailey defendedthe so-called senior managers regime, aimed at making it easierto bring individual bankers to book when things go wrong.
The rules are already law and the BoE is consulting on howto implement them, against a backdrop of resistance from some inthe industry.
Bailey said further guidance will now be given.
UK lawmakers approved the rules after regulators were unableto sanction top bankers after the 2007-09 financial crisis, whentaxpayers had to bail out lenders including RBS andLloyds to the tune of billions of pounds.
One part of the new regime in particular, the so-calledreversal of burden of proof, is alarming some in Britain'sfinancial sector, since top bankers would have to prove toregulators they were not aware of, or had challenged dubiousbehaviour, at the time.
Two directors of HSBC Holdings Plc's Britishbusiness are set to leave the bank because they are unhappy withthe rules, a source familiar with the matter told Reuters lastweek.
"I have read with considerable interest some of the pressreporting of the new regime, which has been at times at oddswith the facts," Bailey told an audience in London's mainfinancial district.
"The regime has been portrayed as all about provingcriminality under a reverse burden of proof. That is the wronginterpretation," Bailey said, adding the key principle is thereshould be a presumption of senior management responsibility.
The BoE's Prudential Regulation Authority (PRA), whichBailey heads, will set out the meaning of the requirement thatsenior managers must show they did everything that could bereasonably expected to stop rule breaches, Bailey said.
Only the very senior executives would be affected.
"But, is it really unreasonable to expect the most seniorfigures to assume responsibility? Not in my view, and in myexperience not in the view of those who take on these roles,"Bailey told the City Banquet, an annual gathering of figuresfrom banking and related sectors.
Turning to banker pay, he said allowances being paid tosenior staff were a response to the European Union's cap onbonuses, under which such payments are being capped at no morethan fixed salary, or twice that amount if shareholder approvalis obtained.
Several banks are giving select staff role-based paymentsdubbed allowances that the bloc's banking watchdog, the EuropeanBanking Authority (EBA), ruled on Wednesday cannot be consideredpart of fixed pay and thus increase wriggle room for a biggerbonus.
Britain is challenging the bonus cap in the EU's top courtwith a ruling due in early 2015.
"So let me be blunt, the bonus cap is the wrong policy, thedebate around it is misguided, and the best thing I can sayabout allowances is that they are a response to a bad policy,"Bailey said.
"They are not a good solution. I will not win friends insome places for saying this, but it dismays me to see a debatewhich is at times so divorced from the heart of the matter,which is setting appropriate incentives by putting a meaningfulamount of pay at risk."
The BoE has until the end of December to comply with the EBAruling on allowances or explain why it won't. (Editing by David Holmes)
