The closure of BCCI in July 1991, almost exactly 27 years ago, ended one of the biggest financial fraud in British history. It exposed the global regulatory system as inherently weak, and led to a series of profound international as well as UK reforms.

In the UK, the Bingham Report - the link is to the Hansard record of its publication - set out in embarrassing detail the twists and turns of decision making at the Bank of England over more than a decade. Published in October the following year, it remains one of the best such report. 

Last October, 25 years on from Bingham’s publication, I posted a short blog suggesting five lessons we could still learn from what happened. This time round, I’ve looked at it through the lens of SMCR.

The first point to make, of course, is that BCCI was a fraud, deliberately perpetrated, and so there is little reason to imagine that SMCR would have altered the bank’s culture, or the behaviour of its executives. And on the regulatory side, the fundamental weaknesses of the Bank’s decision making – failure of imagination regarding the potential scale of the problem, consequent persistence in seeing it through a narrow frame of reference, and reluctance to listen to dissenting internal views – are not those SMCR was designed to fix.

However, even if SMCR would probably not have changed the outcome, here are three reasons to think the regime might have altered how it played out:

1. The discipline of forcing BCCI to produce a Responsibilities Map and Statements of Responsibility for its Senior Managers, might have surfaced some of the implausibilities in BCCI’s business model.

2. It might also have increased the sense of personal risk BCCI executives were taking, particularly in relation to the various Conduct Rules, not least covering disclosure to the regulator.

3. The provisions of SMCR might have given BCCI supervisors a much better framework to use for their investigations of the bank, enabling them to join up the dots more effectively and to be more insistent in their demands for fuller information.

But here, also, are three reasons why the above might have had less positive impact than we might expect:

1. To quote Bingham, “the supervisory problems which BCCI presented were tackled by busy men and women, often over-stretched and with other problems competing for their attention.” None of this has changed for the better.

2. BCCI probably attracted more supervisory resource than an equivalent bank would today. A BBCI-type firm in 2018 would likely be in the FCA’s flexible portfolio – possibly the focus of thematic work but with no named supervisor focused on it – while its business model would, most likely, barely feature on the PRA’s radar of threats to the “safety and soundness” of the UK financial system.

3. BCCI was very much viewed as a challenger, even in what was a much more competitive banking market – with RBS and Bank of Scotland independent and growing, and Building Society demutualisation gathering steam. It offered very competitive rates and innovative products.

So SMCR might have helped improve the regulation of BCCI, but it is highly unlikely to have averted the fraud itself, or enabled supervisors to spot it sooner. 

However it is true that the wider set of reforms that was put in place as a result effectively closed the loopholes BCCI exploited. The danger, looking ahead, is that this international framework of consolidated supervision allowed to lapse through lack of attention, or is actively eroded as the momentum of international regulation weakens and memories fade.