City regulators have published final rules explaining how leading bankers will have to take responsibility for misconduct on their watch - unless they can explain what they did to stop it.
The new senior managers regime means top executives and some board members will be presumed responsible for wrongdoing committed under their auspices - removing the burden of proof on authorities to show they were to blame.
It comes two years after a parliamentary commission set out recommendations for a shake-up of the UK banking industry in the wake of the financial crisis. The new regime will take effect from March next year.
Final rules were published today by the Prudential Regulation Authority (PRA) - part of the Bank of England - and the Financial Conduct Authority (FCA).
Existing legislation means the bodies can start criminal prosecutions against senior managers where they take a decision that causes a bank to fail.
FCA chief executive Martin Wheatley said: "Today we have given clarity on rules that will embed personal accountability into the culture of the City. New conduct rules will add further momentum to improving standards across the industry."
The PRA's rule book sets out the list of key individuals to be held to account including chief executives, finance directors, chairmen and senior non-independent directors.
It subjects senior figures to a "presumption of responsibility", meaning they will be guilty of misconduct if rules are broken in a part of a bank under their control.
The PRA will consider what they knew or ought to have known about the breach, scrutinising meeting minutes, email and telephone records.
Bankers will avoid punishment if they can show they took reasonable steps to avoid rules being broken, such as pre-emptive actions including reviews of the business.
In appointing people to these key roles, firms will have to set out each senior manager's responsibilities in no more than 300 words to avoid complex and unclear definitions which would "go against the spirit" of the new regime.
Rules on how often banks have to report breaches of conduct to regulators have been watered down, meaning they will have to do this less often.
The regulators have also set out rules for less senior staff who "could pose a risk of significant harm to the firm or any of its customers".
This certification regime will cover staff who give investment advice as well as traders submitting benchmarks - such as for interbank lending rate Libor.
The FCA said it was consulting on expanding the latter to cover a wider scope of traders' activity.
Regulators are also proposing a new package of measures to formalise banks' procedures for whistleblowing.
British Bankers' Association executive director Simon Hills said: "This new framework will help to restore trust and confidence in the banking industry damaged by the events of the last decade.
"A banking industry that sets the gold standard for accountability is good for customers and investors as well as those serving in it."
The new rule book for banks comes amid a clamour for action after a series of scandals in the industry.
Chancellor George Osborne said in his annual Mansion House speech last month: "The public rightly asks why it is that after so many scandals, and such cost to the country, so few individuals have faced punishment in the courts."
Bank of England governor Mark Carney said at the same event that the "age of irresponsibility" was over as he set out new plans for jail terms for rogue bankers and traders who manipulate markets to be lengthened from seven to 10 years.
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