* Candidates for top bank jobs see applications dropped
* Banks fear accusations of "substandard candidates" by FSA
* Lawyer calls for confidential appeals process
* Regulator has threatened to reject top bank candidates
By Kirstin Ridley
LONDON, Sept 1 (Reuters) - Britain's leading banks are dropping around 9 percent of applicants for top management positions for fear the regulator will reject them and publicly damage reputations, a law firm said on Tuesday.
Calling for a confidential appeals process, law firm Reynolds Porter Chamberlain (RPC) said 12 candidates for senior jobs in top financial firms saw their applications dropped after separate face-to-face interviews with the regulator.
Since October 2008, when the Financial Services Authority (FSA) regulator started scrutinising top bank appointments in an effort to help prevent a re-run of the credit crisis, three others withdrew applications ahead of interviews with the regulator.
"In the current environment, no financial services company would want to take the risk of being publicly accused of putting forward a supposedly substandard candidate for the job," said Jonathan Davies, a partner at RPC, who requested the information from the FSA under the Freedom of Information Act.
"The reputational damage to the company would be huge and the ensuing publicity might severely restrict the candidate's ability to find another job."
A beefed-up FSA is riling parts of the financial industry as it slams tough new capital and liquidity requirements on banks, scrutinises appointments and attempts to both spearhead global attempts to curb bonuses and take on a greater enforcement role.
"It is essential that firms have competent boards who are able to demonstrate that they have the capabilities to deal with any risks that the firm may face," the FSA said in a statement.
"Our intensified approach to interviewing those people applying for significant positions in systemically important firms is robust and fair. It is a firm's decision as to whether it supports or withdraws a candidate. If the FSA finds a candidate unsuitable they can appeal."
FSA TOUGHENS UP
The FSA, still smarting from accusations that its "light touch" approach helped fuel a boom that sowed the seeds of the near collapse of the financial system last October, has said it will interview applicants for jobs including chairman, chief executive, finance director and risk director at key banks.
The regulator said in May that in the first six months of its so-called "significant influence function" (SIF) review, it carried out 51 interviews and "a number of" case applications had been withdrawn following interviews which raised questions about the candidate's "fitness and propriety".
The FSA has also started taking more action against senior management, where it spots "evidence of culpable misconduct".
Although some compliance officers at banks broadly support the FSA efforts to scrutinise bank policy, others have accused the regulator of risking imposing unacceptable restrictions on business strategies, appointments and company independence.
RPC's Davies noted that the FSA has also proposed approving directors and employees of the parent and holding companies of firms under its remit, if their decisions or actions are regularly taken into account by UK boards.
"Nobody objects to regulators having teeth and claws but they have to be careful not to abuse their powers. There is a concern about just now much arm-twisting the FSA is entering into to force companies into dropping their preferred job candidates," he said.
RPC said according to the data it had received, 147 candidates had been interviewed by the FSA between last October and July 31. Another 27 interviews had yet to be held. ($1=.6126 Pound) (Editing by Rupert Winchester)