Labelled as a ‘major milestone’ in the government’s efforts to reform UK financial services, the law could see senior managers of banks, building societies or investment firms face seven years in jail or an unlimited fine.

Actions become a criminal offence if; a person takes a decision which causes the failure of the firm, if at the time of the decision the person was aware of risks which could lead to the firm’s failure or if that person’s conduct when making the decision was far below what could be reasonably be expected.

Chancellor George Osborne said: “The new criminal offence, which becomes law today, is the latest milestone in my plan to ensure that the British banking industry operates to the highest possible standard. It is absolutely right that a senior manager whose actions causes their bank to fail should face jail.”

The Senior Managers and Certification Regime (SM&CR) also comes into force today. The scheme places individual responsibility on key managers for conduct within their firm.

The SM&CR will also shift responsibility to firms themselves for ensuring key staff below senior management levels are fit and proper, there will be no prior regulatory approval of these staff.

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To find out more about the SM&CR and it what it means for the financial services sector, read Stephen Gazard’s review of the new scheme of accountability.