PRA Hambro (Wyelands) fine: the SMCR bites for NEDs

The PRA has fined George Hambro, a former Notified NED of Wyelands Bank Plc, £72,000 for breaching Individual Conduct Rule (ICR) 2 (skill, care and diligence), relating to the management of the Bank's close relationships with others in the Gupta Family Group (GFG) Alliance. 

The notice follows the PRA censuring the Bank and fining its former CEO £120,000 (read our post on this), and the Financial Reporting Council fining PwC and one of its auditors relating to its audit of the Bank.

The takeaways

This action demonstrates how Notified NEDs' ICR obligations may flex with the nature and extent of their involvement in their firm's dealings.  According to the FT, in his apology to the PRA Hambro recognised that he “should have showed a greater level of assiduousness as a NED”.  Here, his exposure to enforcement risk originated from his involvement in communications about a capital injection, a direction that a director of a party connected to a borrower be recorded as resigning on a specific date, and his proposal of certain transactions to Bank executives.

The PRA stopped short of making findings of deliberate dishonesty or misleading conduct.  To be clear, nothing of this sort is outright suggested.  That said, the action may illustrate that it is attractive to regulators to settle individual accountability actions on negligence grounds rather than risk potentially costly and protracted Upper Tribunal battles about alleged deliberate conduct.

The details

Hambro joined the Bank in December 2016 in a dual role, both as a Notified NED of the Bank and as a senior executive within various members of the GFG Alliance, which together were major shareholders of the Bank. 

Under the PRA rules, a Notified NED is a NED that is not an SMF and does not have executive responsibility. (The FCA calls them “standard NEDs”.) The ICRs still apply to such NEDs, as does Senior Manager Conduct Rule 4 (disclosure to and co-operation with regulators).

The PRA found that Hambro breached ICR 2 in that:

• He was involved in a number of communications with GFG Alliance and Wyelands executives about funding a capital injection without being aware (as he should) whether the Bank was receiving genuinely fresh (or CET1) capital, or making enquiries about the appropriateness of its funding.  In fact the Bank had indirectly funded the capital injection.
• Without sufficient inquiries he gave instructions that a director of a GFG Alliance member be recorded as resigning on a specific date (which consequently favourably affected the Bank's Large Exposures assessments).  As a notified NED, it was unreasonable for Hambro to rely on the instructions he received about this without taking further steps to confirm that they were correct before he instructed the second GFG executive. This adversely affected the Banks' and the PRA's ability to assess whether the Bank was in breach of the applicable large exposures limit.
• He proposed certain GFG transactions to Bank executives without informing the full Board, breaching the Bank's internal policy on engagements with GFG Alliance members.      This contributed to the Bank being exposed to increased conflicts risks.

The fine included a 3x multiplier for deterrence.