Britain’s senior bankers will face new tests to see if they are ethical enough to run large financial institutions, the Financial Services Authority (FSA) said yesterday. Those who fail would be vetoed from top appointments.

Hector Sants, the chief executive of the City regulator, announced an intensification of the blackballing process that has already led to 18 candidates for senior banking roles being rejected in the past year. While vetoes have previously centred on concerns about financial competence and expertise, the emphasis in future would also be on the ability to foster an ethical culture in their organisations.

Candidates would have to demonstrate the required integrity, Mr Sants said, adding that many bankers still did not accept collective responsibility for the financial crisis.

“I personally remain unconvinced that all senior management have taken on board the need to change and operate in a genuinely different manner,” he said in a speech in the City. There now needed to be a genuine cultural and behavioural change within the financial industry, with senior executives setting the tone. “I thus strongly believe that our authorisation regime should seek to make a determination of an executive’s ability to set a strong ethical framework and to foster the right culture.”

He conceded that making such judgments would be difficult but the FSA intended to press on with the policy, setting out its plans shortly in a discussion document. Although Mr Sants gave no further clues on the vetting process, it could include candidates being questioned on ethical issues in their FSA interviews and a greater emphasis on personality type and track record in past employment.

Although senior bankers have always had to pass a “fitness and properness” test, that has not gone much beyond checking that the candidate has no criminal convictions and an unblemished credit record.

Mr Sants also went further than before in admitting to weaknesses in the FSA’s “Treating Customers Fairly” regime — the centrepiece of its attempts to win a better deal for consumers, launched 11 months ago.

TCF “has not delivered the outcomes that consumers deserve”, he said, because it was reactive and concerned with systems and controls within firms. The FSA was now more interested in outcomes, using “mystery shopping exercises” and examining complaints data to ascertain how consumers were really treated.

Britain’s two biggest banks, HSBC and Barclays, issue third-quarter trading statements today. Barclays is expected to reveal strong profits growth from its investment banking arm, raising fresh speculation about bonuses. It is also tipped to resume paying dividends. HSBC, which has continued to pay dividends throughout the crisis, is thought to have made slower progress because of a rise in bad debts.

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