In a break from past practice, the Securities and Exchange Commission (SEC) will begin seeking more admissions of wrongdoing when it settles enforcement cases with banks, Chairman Mary Jo White announced. Agency staff was alerted to the decision in a letter sent on June 17.
The change won’t apply to all cases, but will depend on “how much harm has been done to investors, how egregious is the fraud,” White said at a Wall Street Journal event on Tuesday, Bloomberg reports. The enforcement division will begin reviewing its pipeline of cases but won’t apply the new policy to those already in settlement talks.
White sent a letter to Sen. Elizabeth Warren (D-MA) earlier this month saying that she was “actively reviewing” the commission’s policy of settling with banks while letting them avoid admitting to wrongdoing. The letter was in response to Warren’s inquiry into the practice, as well as the willingness to pursue settlements instead of prosecutions.
News about the SEC’s shift in enforcement policy comes as the U.K. gets even tougher on misconduct at banks. A parliamentary commission called for the creation of criminal sanctions for “reckless mismanagement” in the financial sector on Wednesday. The report also called for stricter rules on pay, greater competition, and more transparency on what activities are the responsibility of executives. While not binding, the report will likely influence future regulations.
Despite the fact that the economic crash was in large part thanks to risky bets and even fraudulent behavior at many large banks, there have yet to be prosecutions. Instead, regulators have mostly sought settlements that allowed banks to avoid admitting to wrongdoing. On the whole, prosecutions for financial fraud hit a 20-year low in 2011.
The largest settlements in the wake of the crisis, for mortgage and foreclosure fraud, have been rife with problems and allowed banks to game the requirements while offering little assistance to homeowners.