* Pivotal moment in government/regulator relationship-lawyers
* BoE's Bailey says change won't make difference in practice
* BBA: rules will still ensure "gold standard" for banking
* Signals "banker-bashing now entered close season" - law firm (Adds fresh comment from lawmaker Tyrie)
By William James and Huw Jones
LONDON, Oct 15 (Reuters) - Britain is scrapping plans that would treat senior bankers as 'guilty until proven innocent', easing industry fears that tough new rules will scare top talent away from London and further appeasing a sector bristling against stringent regulation.
The finance ministry said on Thursday it was broadening rules to make individual senior bankers more responsible for failings on their watch to include asset managers, hedge funds and other bank customers as part of a new parliamentary bill.
A new statutory duty of responsibility will also require senior managers across the financial services industry to take appropriate steps to prevent regulatory breaches.
But a rule that demanded senior managers prove they had taken appropriate steps to prevent misconduct by their employees, that had set Britain apart from its peers and reversed the burden of proof on executives, has been abandoned.
It will now be for regulators to prove that reasonable steps to prevent failings were not taken.
The so-called senior managers regime -- designed to quell public anger that few bankers have been prosecuted or jailed after taxpayer bailouts of lenders during the financial crisis -- comes into effect next March for British and foreign banks operating in the United Kingdom.
"It will be easier to defend their (managers') actions if it ever gets to court now," said Rob Moulton, a lawyer at Ashurst. "But only if they ... manage the risks, otherwise the accusation will be that they have failed to discharge that duty (of responsibility)."
The Bank of England and the Financial Conduct Authority, Britain's two bank regulators, adopted new approaches to supervision after regulators were found wanting in the run-up to the financial crisis, arguing a tough new framework was needed to make it easier to pin blame for misconduct on individuals.
But finance minister George Osborne signalled in a speech in June that he wanted a "new settlement" with the financial sector, taken to mean a softening of approach and an end to so-called "banker bashing".
A few weeks later, he ousted FCA chief executive Martin Wheatley, who had warned he would "shoot first" and ask questions later as he faced fresh scandals in the sector such as the attempted rigging of Libor benchmark interest rates and currency benchmarks and the mis-selling of loan insurance.
Andrew Tyrie, a member of parliament and chairman of the Treasury Select Committee, said he was worried the reversal of the burden of proof was the result of lobbying by bankers.
"I would have preferred that more time had been taken to enable the new system to bed down. It would be concerning if this change was a response to special pleading from the banks," he said, adding his committee would quiz Osborne and BoE officials about the issue.
Andrew Bailey, deputy governor of the BoE and chief executive of its banks supervisory arm, the Prudential Regulation Authority, said little had changed in practice.
"This change is one of process, not substance. The focus for firms and individuals should be on complying with both the letter and the spirit of the rules rather than considering ways to circumvent them," Bailey said in a statement.
Britain's BBA banking lobby group said the new rules would not change the objective of the new regime and ensure governance and accountability in banks "of the highest standard".
Simon Morris of law firm CMS said: "Bankers will of course be relieved, but the key point is that the government is reassuring the market that UK Plc is open for business and that banker-bashing has now entered the close season."
Critics of the original "presumption of responsibility" plan argued it was likely to repel top talent away from London to financial centres in Asia, continental Europe and the United States, where authorities have so far taken a softer approach to individual responsibility and accountability in banking sectors.
However, Mary Jo White, chair of the Securities and Exchange Commission (SEC), which supervises U.S. financial markets, said in June the U.S. should also evaluate how to hold individuals responsible for collective wrong-doing. (Editing by Janet Lawrence)