Bank answers critics over Barings

JOHN EISENHAMMER

Financial Editor

The Bank of England has joined forces with securities regulators in the City and New York to strengthen its supervision of investment banks in response to criticisms following the collapse of Barings.

The Bank has begun joint visits of leading investment banks in London with the Securities and Futures Authority, the City watchdog. It has also begun working with the US Securities and Exchange Commission and the New York Stock Exchange on similar visits on Wall Street.

The Bank was harshly criticised last summer by the Board of Banking Supervision following its inquiry into Barings, and was asked to make a series of improvements in its supervisory activities. In particular, the criticisms pointed out weaknesses in co-operation between the various supervisory and regulatory bodies in the securities industry.

The Bank of England yesterday issued its report to the board on the progress it has made on the 17 recommendations for improvements.

In addition to the internal improvements, Arthur Andersen, the consultants, have been brought in to look over the Bank's supervisory process. They are due to end their review in late April or May, and will make recommendations for a comprehensive "quality assurance function".

The Bank said it had established ways of improving the exchange of information with the SFA and has already worked with it on several "live" cases. In the past, the Bank and the SFA would liaise before and after one or other had carried out inspection visits on investment banks. The Bank is to revise its memorandum of understanding with the SFA to take account of this increased collaboration, as it will with Liffe, the international futures exchange, the London Metal Exchange and the London Clearing House.

The Bank is to develop a permanent framework for the exchange of information with the US regulatory bodies.

The Bank has also addressed the criticism that it had an insufficient idea of what was going on in parts of the Barings group, in this case Barings Futures Singapore, by establishing a framework for defining "significant risk" in a group. This encompasses operations outside the core bank, which the Bank of England focused on in the past. This means any geographical or product-based operation that involves more than 5 per cent of the group's regulatory capital or generates more than 5 per cent of group revenues.