Bank of England (BoE) Deputy Governor Andrew Bailey defended the so-called senior managers regime, aimed at making it easier to bring individual bankers to book when things go wrong.

The rules are already law and the BoE is consulting on how to implement them, against a backdrop of resistance from some in the industry.

Bailey said further guidance will now be given.

UK lawmakers approved the rules after regulators were unable to sanction top bankers after the 2007-09 financial crisis, when taxpayers had to bail out lenders including RBS (>> Royal Bank of Scotland Group plc) and Lloyds (>> Lloyds Banking Group PLC) to the tune of billions of pounds.

One part of the new regime in particular, the so-called reversal of burden of proof, is alarming some in Britain's financial sector, since top bankers would have to prove to regulators they were not aware of, or had challenged dubious behaviour, at the time.

Two directors of HSBC Holdings Plc's (>> HSBC Holdings plc) British business are set to leave the bank because they are unhappy with the rules, a source familiar with the matter told Reuters last week.

"I have read with considerable interest some of the press reporting of the new regime, which has been at times at odds with the facts," Bailey told an audience in London's main financial district.

"The regime has been portrayed as all about proving criminality under a reverse burden of proof. That is the wrong interpretation," Bailey said, adding the key principle is there should be a presumption of senior management responsibility.

The BoE's Prudential Regulation Authority (PRA), which Bailey heads, will set out the meaning of the requirement that senior managers must show they did everything that could be reasonably expected to stop rule breaches, Bailey said.

Only the very senior executives would be affected.

"But, is it really unreasonable to expect the most senior figures to assume responsibility? Not in my view, and in my experience not in the view of those who take on these roles," Bailey told the City Banquet, an annual gathering of figures from banking and related sectors.

Turning to banker pay, he said allowances being paid to senior staff were a response to the European Union's cap on bonuses, under which such payments are being capped at no more than fixed salary, or twice that amount if shareholder approval is obtained.

Several banks are giving select staff role-based payments dubbed allowances that the bloc's banking watchdog, the European Banking Authority (EBA), ruled on Wednesday cannot be considered part of fixed pay and thus increase wriggle room for a bigger bonus.

Britain is challenging the bonus cap in the EU's top court with a ruling due in early 2015.

"So let me be blunt, the bonus cap is the wrong policy, the debate around it is misguided, and the best thing I can say about allowances is that they are a response to a bad policy," Bailey said.

"They are not a good solution. I will not win friends in some places for saying this, but it dismays me to see a debate which is at times so divorced from the heart of the matter, which is setting appropriate incentives by putting a meaningful amount of pay at risk."

The BoE has until the end of December to comply with the EBA ruling on allowances or explain why it won't.

(Editing by David Holmes)

By Huw Jones