The following article was written by Susan Kramer and published yesterday on the Lib Dem Voice Website.

Last week senior bankers breathed with relief and opened the champagne. The Lords, by just 2 votes, gave in to the Tory Government and failed to uphold the tough rule known as the “reversal of the burden of proof” for failures by senior bankers which was passed into legislation in 2013 and is now cancelled.

I was a member of the Parliamentary Commission on Banking Standards which recommended the rule. It was the most potent weapon we could give the regulators to prevent future banking scandals by making sure that senior bankers would be held to account for their management of the banks. Instead of hapless regulators trying to chase senior bankers in a “catch-us-if-you-can” set up brilliantly managed by teams of bank lawyers, senior bankers would have had to show that they had acted responsibly. The rule would make sure senior bankers are held to account, this would not lead to cases of guilty until proven innocent as the regulators would still have to prove an offence took place. The rule would have gone into effect in March 2016. But with the Coalition ended George Osborne and the Tory Government couldn’t wait to scupper it.

Ordinary people, especially the many hurt by the banking crisis and the recession it helped to trigger, have been justly furious that despite all the misbehaviour by banks the UK regulators have been unable to pursue anyone in senior management – not one. The scandals have ranged from sheer mismanagement, to miss-selling PPI and interest rate swaps, manipulation of the LIBOR benchmark and money laundering – much of it on an industrial scale.  Senior managers enjoyed huge bonuses off the back of the false profits these schemes generated.

The “reversal of the burden of proof” (for what is a civil not a criminal offence) would have made the regulators effective enforcers. It is a well-established concept used in quite a number of other areas of British law when it is deemed necessary for justice – indeed even the smallest engineering firm faces it on issues of health and safety as was made clear in the Lords debate. Perhaps even more important than delivering justice, this strong power for the regulator would have changed the culture of banks.  It would have had the effect of compelling CEOs and other senior managers to drive ethical behaviour right through their organisations despite the profitable rewards available for misbehaviour.

The tough rule fell by only two votes. The Labour turnout for this vote was pathetic despite all their speeches in favour. The Conservative Government has not done right by the people of this country by deliberately giving way to the pleading of the banks and removing a key power to avert future banking and financial crises.

Susan Kramer is the Lib Dem spokesperson for Economics. She is a member of the House of Lords and former MP for Richmond Park.