Rianne Herregodts and Heinrich Winter cooperate in disciplinary law research

Since 1 April 2015, the Financial Supervision Act (Wft) has required banks to subject their employees to disciplinary law. Meanwhile, more than nine years have passed since the introduction of disciplinary law. The board of Stichting Tuchtrecht Banken (STB) therefore asked the University of Groningen and Pro Facto to evaluate disciplinary law. Dr Rianne Herregodts and Prof Heinrich Winter contributed to the project.

About disciplinary law

Disciplinary law was supposed to restore consumer confidence in the banking sector that had been damaged by the financial crisis. The legislator left the organization of disciplinary law to the industry, which should regain consumer confidence through self-regulation. Banking disciplinary law was thus enforced through public law and shaped privately by the Dutch Banking Association (NVB).

Purpose and operation of disciplinary law

It is not easy to determine the effect of disciplinary law. This is firstly because the legislator and the NVB have not formulated a sharp objective of disciplinary law. Secondly, it is difficult because much has changed since the financial crisis in terms of legislation and regulations for banks and their supervision. As a result, views on the purpose of disciplinary law vary. One view harkens back to the causes of the financial crisis and argues that disciplinary law should focus on weighing clients' interests in decision-making. According to the second view, the added value of disciplinary law is determined by excluding people from the sector who have shown themselves unable or unwilling to behave as may be expected of a bank employee.

The research shows that the operation of disciplinary law at present is mainly in line with the second view. Complaints are often about obvious misconduct by employees, such as account peeking, who are often - whether or not after taking labor law measures - no longer employed by the bank concerned and who usually do not hold influential positions within the bank. These are not the cases that deal with risky banking products, difficult trade-offs of interests involved and other dilemmas that underpinned the banking crisis.

Given the conclusions of the study, the researchers believe that the current setup deserves adjustment in at least some areas. The study outlines three scenarios for the future of disciplinary law. It is up to the STB, the banks and the Minister of Finance to choose between these scenarios.

Three scenarios

The first scenario is to fine-tune disciplinary law as an instrument to identify and sanction misconduct by individual employees and to inform employers in the sector about it through the disciplinary registry. The second scenario requires a thorough reform of disciplinary law, which should be more explicit about how the interests of clients are involved in decision-making and how those interests are balanced against other interests.

The third scenario proposes abolishing disciplinary law because it has since been replaced by new legislative regulations, such as the 'fit and proper' test of directors and supervisors and by internal supervisory mechanisms at banks. In the greatly changed banking landscape, other instruments are better suited to agenda-setting and monitoring standards on professional ethics.

The report that Herregodts and Winter contributed to, can be downloaded and read at the link below:

This article was published by the Faculty of Law.