SFA risk-rating system queried by Large
Friday 11 April 1997
Under the SFA's new regime, the 1,370 firms it regulates will be rated on a scale of one to five based on the level of risk involved in their operations and the quality of their management controls.
The new system will be used to determine how tightly firms are regulated, how often they are inspected and how much capital they must put up to cover the exposure in particular markets. Individual firms will be informed of their ratings this summer.
But in a speech to businessmen in Cardiff earlier this week, Sir Andrew, who as SIB chairman is in overall charge of regulating the financial services industry, pointed to some of the drawbacks of such a system and the dangers of misinterpretation.
Sir Andrew said: "If we make judgements about the riskiness in firms how will we find the right way to inform firms about how risky we think they are, when we have carried out our risk assessment? Feedback to the firm on the key points of the assessment is essential. But should this be done formally through some form of rating or risk profile? And if so, should the firm be told precisely what it is? And what about the public? Regulatory assessments can easily be misunderstood - one shudders to think of the systemic effect of a run on a bank as a result of an ambiguous regulatory assessment. We need to consider similar issues for non-bank firms."
SIB sources stressed it was strongly in favour of weighting the system of regulation so that firms perceived as being more risky were monitored more closely, visited more regularly and required to put up more capital.
But they were sceptical about using a formulaic rating system. "There are difficulties with categorising a firm from one to five because there is no single number that can encapsulate everything," one said.
The SIB is also thought to be concerned about firms using their SFA rating as a marketing tool to attract clients.
An SFA spokesman stressed that the purpose of the rating system was to enable it to decide internally how much attention it needed to pay to individual firms.
The SFA system rates firms in five categories - financial stability, quality of systems and internal control, business, supervisory complexity and quality of personnel and management. Although the SIB is responsible for supervising the work of the SFA, the Financial Services Act gives all the self-regulatory organisations in the City independence from one another and the SIB.
The Microsoft mogul told fans a few home truths during his Reddit AMA
First full-length look is finally here
World cities ranked in terms of safety, food security and 'liveability'
- 2 The awkward moment Sarah Palin raised $25,000 for Hillary Clinton's election campaign
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 5 Baldness could soon be treated using stem cells, scientists hope
Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
Sex abuse inquiry: 'Victims receive death threats' after MPs release names online
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Teenager brandishing fake gun taken down by police after demanding airtime on Netherlands' NOS TV station
The awkward moment Sarah Palin raised $25,000 for Hillary Clinton's election campaign
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...