The Financial Reporting Council and Sir David Walker have warned MPs that strict liability for directors of financial institutions could make it harder to recruit people on to boards and lead to increased litigation.
Walker was brought in to help the regulator draft a report into the failure of the Royal Bank of Scotland.
Published last December, the report says making directors accept personal financial losses if a firm gets in trouble could help strike a new balance between risk and reward in financial institutions.
Giving evidence to the Treasury select committee this week, FRC chairman Baroness Hogg said: “There is a perception you would have to be totally insane to go on the board of a company, let alone a financial institution. There is a danger if you go down this route you would make the pool rather more shallow.”
Walker said: “I would argue against it, as it would drive people away. The only thing that would be certain is there would be a mountain of litigation.”
FSC Investment Services managing director Frank Cochran says: “These people cannot be held accountable for everything that happens to a business. If there is gross misconduct on their watch, they lose their job and I think that is a big enough kick in the teeth.”