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PRA To Stage Summit On Bank Board Reforms

The Bank of England is to hold talks with dozens of the City's top directors amid concern about the potential impact of new rules that could see directors of failed institutions being handed lengthy jail terms.

Sky News has learnt that the Prudential Regulation Authority (PRA) has convened a summit on 2 June to discuss the implications of the new Senior Managers' Regime and the future responsibilities of non-executive directors at major banks and insurers.

The meeting will follow months of complaints from City figures that the new framework is draconian, and will deter suitable candidates from putting their names forward for directorships of banks and, to a lesser extent, insurance companies.

Under the PRA rules, non-executive directors of major banks will face a greater burden of proof if their institution gets into difficulty, a reflection of widespread criticism that independent directors failed to identify warning signs in the run-up to the last crisis.

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Next (Other OTC: NXGPF - news) month's meeting will be aimed at board members of the largest banks, building societies and insurers, a source said.

Andrew Bailey, the PRA chief executive, said in February that its regime would encompass chairmen and non-executives with specific board responsibilities.

“Organisations need to make sure they have on the board people with the right skills, who are prepared to dedicate an appropriate amount of time to this vital role," he said.

“It is not our intention that non-executives should take on executive roles, which would compromise their independence as a result of these regulatory changes.”

Mr Bailey has disputed the idea that the new framework will act as a brake on banks' recruitment of suitable directors, calling the sanction of jail sentences a power "that you have got in reserve but is not the main tool".

However, a number of directors including two board members at HSBC's UK holding company have privately expressed reservations about the impact of the Senior Managers' Regime.

One has since resigned while the other was persuaded to remain in his post.

The new rules amount to arguably the toughest oversight regime of any leading financial centre, and come as banks have to identify dozens of new board members to serve on the boards of ring-fenced entities that will come into being in 2019.

The PRA is also introducing new rules next year forcing bankers to defer bonuses for seven years from the point of award, creating the toughest pay framework of any global financial centre.

George Osborne, the Chancellor, pushed for the more stringent regime in the aftermath of the banking crisis and the conclusions in 2013 of the Parliamentary Commission on Banking Standards, set up following the Libor rate-rigging scandal.

The implications of the ring-fencing plan are among the factors which have pushed HSBC to initiate a formal review of whether to keep its headquarters in the UK.

The PRA declined to comment.