Barings casualties face fines and City blackballing

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The Independent Online
A top securities industry watchdog warned former Barings' executives yesterday they could face being banned from the City and fined under its wide-ranging disciplinary powers. "There are a lot of names in the Bank of England report, and plenty of criticism of massive incompetence. We shall be looking very closely at what went on," said Richard Farrant, chief executive of the Securities and Futures Authority.

A difference of opinion among regulators also emerged yesterday over the extent of responsibility for the fateful concession allowing limitless funding to be sent by Barings bank to its securities arm. The Bank of England report criticised this concession and placed the blame for it on a middle-ranking supervisory official, Christopher Thompson, who was encouraged to resign last week. But the SFA said this dispensation was widely known about.

The SFA's disciplinary remit covers all senior directors dismissed from Barings shortly after the merchant bank collapsed under nearly pounds 900m of derivatives losses.

The report by the Bank of England contains detailed criticism of negligence and incompetence on the part of ex-Barings executives, as well as claims that there was misreporting to the regulatory authorities.

On grounds of incompetence, the SFA can blackball individuals from working in the City, and can fine them. "If we have any material doubts about the suitability of people for jobs in the City, then they will be kept out. We are really talking about incompetence here," said Mr Farrant.

Christopher Thompson, number four in the Bank of England's banking supervision division, bore the blame in the report for misjudgements in the regulation of Barings.

He will be the only official to lose his job, the Bank confirmed. Insiders report considerable resentment among supervision staff that Mr Thompson appears to have been made a scapegoat.

The report blames Mr Thompson for granting two informal, and hence not properly documented and authorised, concessions to Barings, allowing it to exceed prudent financing limits. The first dispensation removed any limit on the proportion of its capital Barings could bet on the Osaka and Singapore exchanges. This was an "error of judgement", the report found.

The second concession, so-called solo-consolidation, in effect treats the banking and securities business as one, allowing unlimited lending from one side to the other. Barings was the first time such a concession was granted by the Bank.

The report said Mr Thompson was responsible, and recommended in future that such decisions be referred to the top. The report only mentions Carol Sergeant, head of UK banking supervision and Mr Thompson's superior, as raising questions about the suitability of granting the concession.

Barings was then told it would be regulated under solo-consolidation in a letter on 4 November 1993 from Mr Thompson. There is a difference of opinion, however, over whether his superiors were aware of this unusual status. According to Mr Farrant of the SFA, it was widely known. "The Bank collectively clearly knew that it had granted solo-consolidation, and it had clearly committed itself to solo-consolidation. Nobody disputed that," he said.

The report details how Barings executives authorised funding worth more than twice the bank's capital for Nick Leeson's derivatives trading in Singapore. Normally, this would be illegal under the Banking Act, but given the special dispensation, there were no limits, and as the report showed, few controls. By the time of the collapse, the cumulative funding amounted to pounds 742m.

"The funding provided to Barings Singapore was extremely high. The funds were transferred, at least in part, on the basis of unsupported requests from Singapore for which there was no reconciliation to underlying records. The failure to investigate thoroughly these transfers of funds played a major part in the collapse of Barings," the report stated.

Coopers & Lybrand, auditors to Barings in the years leading up to its collapse, are allowing the key audit partners involved to continue working on similar jobs despite criticism of their role in the Board of Banking Supervision report into the affair.

Coopers say they are not anticipating any disciplinary action by their own regulator, the Institute of Chartered Accountants, or any litigation by Barings' administrators, saying there would be no grounds for such actions.


Barings executives under SFA disciplinary investigation

Peter Baring, former chairman

Andrew Tuckey, former deputy chairman

Peter Norris, former head of securities

Ron Baker, former head of financial products group

Geoffrey Barnett, former chief operating officer

Geoffrey Broadhurst, former finance director

Anthony Gamby, former head of settlements

Anthony Hawes, former treasurer

Ian Hopkins, former head of group risk control

George MacLean, former head of bank group

Mary Walz, former global head of equity derivatives

James Bax, former regional manager, South East Asia.