Tuesday 09 July 2013 by Catherine Baksi

New criminal sanctions that would jail senior bankers for 'reckless misconduct' will not stop banks failing or help to promote economic growth, the Law Society said today.

Chancery Lane's warning comes as the government is accused of watering down proposals made last month by the parliamentary commission on banking standards.

Responding yesterday to the commission's report, chancellor George Osborne agreed to implement its main recommendations.

These include creating a new criminal offence of reckless misconduct; the deferral of bonuses for up to 10 years; a new approvals regime governing the behaviour of senior bankers and reversing the normal burden of proof where banks break the rules.

However the government will not take forward recommendations to toughen limits on banks' risk-taking.

The Law Society's chief executive Desmond Hudson said the Society is particularly concerned about the unfortunate and unintended consequences of the reforms.

He said: 'Introducing recklessness as the basis for an offence means that prosecutors will have to decide, possibly years after a business decision was taken, whether it was reckless or not at the time.

'At a time when growth is vital for the UK economy, it's important that we get the balance right between ensuring adequate risk control and stimulating business.'

Hudson argued that business decisions will always involve a degree of risk and that in an unpredictable commercial environment a decision which, with the benefit of hindsight could be seen as reckless, might at the time be a perfectly reasonable course of action.

The Society warned that the prospect of facing criminal sanctions may deter experienced, well-qualified candidates from taking up senior positions, which could mean struggling banks facing a vacuum of leadership at a time when they most need it.

Instead, it suggested it would be quicker, more transparent and more effective if relevant authorities use the full range of regulatory measures coupled with civil remedies to ensure irresponsible individuals cannot continue to work in the industry.

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