The FSA is preparing to take tough action on senior management personnel at financial services companies after major failings were identified in its handling of Northern Rock.
Launching a consultation paper on changes to the approved persons regime, the FSA says it wants to be able to take tough action on persons with 'significant influence' in a firm, particularly with those responsible for corporate governance.
As part of the FSA's supervisory enhancement programme (SEP), which was begun after a Parliamentary review found the regulator had failed to properly oversee Northern Rock.
The FSA hopes to increase its oversight of directors and non-executive directors of firms, including those at parent companies to which an authorised firm is accountable.
Previously, the regulator had focussed on issued of dishonesty or a lack of integrity when dealing with persons with significant influence, but hopes to extend it coverage.
"In the future, we will also consider the competence of significant influence function holders and we would not shy away from pursuing cases against individuals who breach our Principles and the Code of Practice for Approved Persons," says the FSA.
The regulator also wants to be able to take tough action against directors of holding companies and parent companies in cases where they exert a significant influence on a firm and its corporate governance.
"The current regime captures individuals in matrix management structures if there has been a significant delegation of authority for management decisions by the governing body of an authorised firm," the consultation paper says.
"However, the regime does not necessarily reflect the increasing significant influence exerted on an authorised firm by individuals based in parent undertakings or holding companies to which the authorised firm is accountable."
Following the Northern Rock scandal, it emerged that the senior management of the bank had failed to properly account for the risks involved in their business model, and the FSA hopes to bestow greater responsibility on company directors to ensure a similar situation does not arise in future.
Graeme Ashley-Fenn, director of permissions at the FSA's decisions and reporting division, says: "It is critical, not just for the firm, but for market confidence that our major institutions are soundly run by individuals who have clearly demonstrated that they have the necessary skills, experience and integrity.
"Our vetting process is not intended to be a substitute for a firm undertaking proper due diligence itself - responsibility for this still lies with a firm's senior management. These proposals align with a shift in FSA focus: where a significant influence holder shows incompetence or dishonesty, we will consider enforcement action against him or her."
The Consultation will run until 31 March 2009, with a final document and revised rules for approved persons to be published before the end of June 2009.
Contact: John Bakie, Tel: 020 7484 9805, e-mail: [email protected]IFAonline
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