New FSA regime poised to target rogue traders

Regulator to impose a 'fit-and-proper person' test on all existing and new proprietary dealers

The City's 2,000 proprietary traders are to be tested on their financial suitability in a clampdown on potential rogue traders. The move is part of a tough new regime in which the Financial Services Authority will also record interviews before approving directors or dealers to provide evidence in case they lied.

Proprietary traders invest their banks' own capital but some trading positions have resulted in losses, including the huge holdings of property ventures and US mortgage bonds at HBOS, now merged with Lloyds. Lloyds revealed a loss of £10bn loss last week and its share price fell 40 per cent on Friday to 55p. The heavy losses increased speculation that the Government might have to increase its 43 per cent shareholding.

Some dealers have exceeded their trading limits, leaving banks with crippling losses, including the £827m racked up by Nick Leeson at Barings in 1995 or the €5bn (£4.5bn) black hole left by Jérôme Kerviel, at Société Générale a year ago.

The FSA wants every proprietary trader to become an approved person under a fit-and-proper test that will look at drug and alcohol abuse as well as financial credentials. Banks are being consulted and an announcement is expected after Easter. The regulator has told banks: "The approval of proprietary traders on its own may not deter or stop rogue traders but when combined with effective supervision it may assist to detect and mitigate issues before they crystallise."

At least 2,000 traders will have to seek approval immediately, and 1,000 a year after that.

The FSA also plans to extend its "approved persons" regime to non-executive directors as well as senior full-time staff. Around 200 part-time directors will face scrutiny each year. "We want to get away from the idea that our approval is a box-ticking exercise," says the regulator. "In future we will be more likely to hold non-executives accountable if there is evidence to suggest that they have failed to fulfil their duties."

MPs grilled the former chairmen and chief executives of HBOS and Royal Bank of Scotland on their skills last week and there have been calls to consider banning them or the banks' non-executives from holding financial positions again. The regulator refused to say on Friday what action it is taking, but said: "In the past we have said that we will not discipline non-executives if they acted in accordance with their roles when things go wrong. In future, we will look at non-executives more closely."

The FSA estimates the clampdown on prop traders will cost the industry £1m and admits the expenditure cannot be justified on a cost-benefit basis. It concedes existing controls have not prevented rogue traders." However, the FSA hopes subjecting prop traders to a test will mean some potential rogue traders are refused approval.

Meanwhile, the Treasury is to advertise for an FSA deputy chairman after Sir James Crosby's resignation.



Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?