City watchdogs scrutinising fewer financial services boardroom appointments

Data obtained by the firm through a freedom of information request showed that 246 applicants for boardroom positions at financial institutions were interviewed by then regulator, the Financial Services Authority (FSA), last year. The FSA interviewed 528 applicants a year at the height of the financial crisis, according to the figures.

The current Significant Influence Functions regime allows the regulator to interview applicants for certain roles if the job is with a systemically important organisation, or if it has specific concerns about their ability to do the job. Applicants for chair, chief executive, financial director or non-executive are often subject to additional scrutiny under this regime.

Financial services regulation expert Monica Gogna of Pinsent Masons, the law firm behind Out-Law.com, said that part of the reason for the drop was because applications for boardroom roles within regulated organisations had fallen to their lowest level in five years. However, the proportion of applicants called in for interview fell to 4% in 2012; its lowest level for several years, she said.

"While we are still some way away from the 'light touch' days of 2008 – when less than 1% of candidates were interviewed by the FSA - this data may suggest that we are actually already moving to a position where the regime is becoming more focussed and more targeted on those at the very top," she said.

"The level of boardroom scrutiny over the past few years has arguably been unsustainable and there now appears to be some recognition that it is also undesirable. Where the previous regime cast the net relatively wide, the proposals put forward by the Parliamentary Commission on Banking Standards would have a much narrower focus on the most senior people and create more of an ongoing relationship with the regulatory authorities," she said.

Published last month, the final report of the Parliamentary Commission on Banking Standards (PCBS) highlighted the Significant Influence Functions regime as one of the main regulatory areas most in need of reform. The report recommended replacing the current regime with a two-tier Senior Persons Regime and Licensing Regime, underpinned by a new set of Banking Standards Rules. Under the Senior Persons regime, the main responsibilities within financial institutions would be assigned to specific individuals, who would be held to account for how they carry these out.

A new criminal offence would be created which would apply to Senior Persons who carry out their professional responsibilities in a reckless manner. This offence could carry a prison sentence. Senior Persons would also be subject to an ongoing monitoring process, rather than a 'one-off' assessment on appointment.

"Given public anger over what is perceived as an inability to hold senior executives to account, it is right that the current regime be reviewed," Gogna said. "However, these are seismic decisions, the impact of which will reverberate throughout the UK economy for years to come."

"A balance has to be struck between being vigilant while creating a system that does not discourage new entrants - whether it be talent or organisations - from coming into the UK market," she said.