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Banks may see rise in unfair and constructive dismissal claims

Senior staff predicted to demand indemnities for regulatory issues that predate their employment

29 September 2015

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New regulations that hold senior bankers personally accountable for breaches of regulatory requirements could lead to a rise in employment claims in the financial services sector.

The change comes as a result of the Banking Reform Act 2013 - set to come into force from March 2016 - which granted the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) power to impose sanctions where a failure of a financial institution has occurred and the actions of the senior manager responsible falls far below what could reasonably be expected of their position.

The new regulations could see senior bank managers personally or criminally liable for failings of more junior employees and could possibly increase the number of legal disputes faced by the banking sector.

Considering the potential risk, lawyers suggest that employers may opt to 'stand down' members of staff who are at fault, rather than manage and improve their performance.

'The risk is that managers will act in haste and that unfair dismissal or constructive dismissal claims will follow,' commented Jon Gilligan, a partner at GQ Employment Law.

'The FCA's and PRA's determination to create much more individual responsibility for any failures that occur in the banking sector is likely to cause considerable upheaval throughout the City and create significant tension between senior managers and banks' HR and legal teams,' He continued.

'Senior banking staff will not want to take the fall if an underperforming team member puts the bank at risk of regulatory action, but HR and legal will want to avoid unnecessary employment law claims.'

Banks may also find it harder to attract senior staff, who will want greater assurances as to their role and the business they are entering.

'Senior staff will want to have a high level of clarity about their areas of responsibility and might resist taking on additional responsibilities if they fear that their team could fall foul of the regulator,' added Gilligan.

'We could also see senior staff demanding warranties or indemnities from their employers in relation to problems that relate to the period before they took on the role.'

This article first appeared in PCA's sister publication, Solicitors Journal

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Tax & Wealth structuring