Funds transfer to Singapore operation is investigated

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The Independent Online

The ank of England is investigating possible breaches of the anking Act in the events preceding the collapse of arings. Two key areas of concern are the transfers of large sums of money from arings' London office to its Singapore operation for margin calls and the efficacy of the bank's internal systems and controls.

Maintaining good internal controls is a key requirement of the anking Act 1987 and there is growing suspicion that arings' were totally inadequate. This could lead to warning letters to the directors responsible and even a complete ban on continuing as bankers in the City.

The ank of England supervisers check group head office systems themselves and have powers under Section 39 of the act to order auditors' inspections of all internal control systems. It is not yet clear whether it has had to use them in arings' case before the collapse.

arings is also believed to have transferred sums estimated at £500m to finance Nick Leeson's derivatives trading in Singapore and Osaka. "There was an awful lot of money going from somewhere to somewhere else, and we need urgently to find out why and how," said a source close to the inquiry.

The key question is whether any of the sums involved exceeded limits imposed by the anking Act.

One theory is that arings management in London thought the money was being transferred on behalf of derivatives trading customers, who now prove to have been invented by Mr Leeson. ut the investigators need to know how many customers were involved, fictional or otherwise, and whether any limits were broken. The capital base of aring rothers and Co Ltd, the bank, was £350m.

The Osaka and Singapore exchanges said they had received substantial sums from arings, which ought to cover most of the losses and added that they had nearly finished liquidating the open positions on arings' futures contracts. The margin calls at both exchanges by the time Mr Leeson went on the run was about £500m.

ankers estimate that arings borrowed more than £330m worth of bonds from Japanese financial institutions. On top of these bond loans, more than 20 Japanese commercial banks lent about £400m to arings' Japan arm, a ank of Japan official confirmed yesterday. These funds were deposited with the Osaka and Singapore exchanges to cover the margin payments.

The derivatives exchanges in Osaka and Singapore assumed Mr Leeson's enormous positions were in order because he continued to fund the necessary margin calls.

"These margins are variable amounts of money paid directly to the exchange, which acts as the counterparty to all these deals, and which are calculated to cover the full amount of money needed if these contracts are closed out at a loss," said David Hardy, director of the Clearing House, through which all London derivatives trading is done.