SFA seeks powers to prosecute over lax management

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The Independent Online
New rules being considered today by the enforcement committee of the Securities and Futures Authority will make it easier to discipline senior executives of City firms that get into trouble.

The proposals were drawn up following widespread criticism of the SFA earlier this year, when Peter Baring, former chairman of Barings, and Andrew Tuckey, his deputy, escaped prosecution for rule breaches.

If the new rules are approved after a public consultation period which begins next month, top executives could be prosecuted by the securities regulator for falling down on key management tasks.

The SFA's present rule-book says senior executives have ultimate responsibility for compliance with the rules, but the statement is so general it can prove impossible to pin down any specific offence on which charges can be brought.

The new rules are expected to spell out several objectives senior executives must aim to meet, including standards of the management of business generally, besides the quality of internal controls and risk management. The SFA's rules on what it can say in public about cases may also be eased.

Now, if the SFA can show that top executives have failed to ensure controls are in place andmonitored effectively, the regulator can bring formal charges.

Nick Durlacher, chairman of the SFA, says in the regulators' July briefing notes that the investigations of Mr Baring and Mr Tuckey "did not uncover evidence of wrongdoing by them that would have sustained a prosecution for rule breaches."

He said the two executives had agreed voluntarily not to apply to rejoin the SFA's register of individuals for the foreseeable future, and to accept responsibility for the failure.

But he added: "The absence of a finding of guilt led to a torrent of criticism of the SFA that proved damaging to the perception of regulation as a whole." Mr Durlacher pro-mised the SFA would take into account the objections of senior executives to having greater responsibility placed on them "vicariously".

He said he did not want the pendulum to swing so far as to place unreasonable demands on senior people. But he believed a balance needed to be struck.

The enforcement committee's meeting today coincides with the appearance of two other former Barings executives, Ron Baker and Ian Hopkins, at a hearing of the Commons Treasury Select Committee.

Mr Baker last month became the first senior Barings executive to criticise his colleagues in public, when he used a previous session of the select committee - protected by parlia- mentary privilege - to allege a cover- up, by former colleagues, of a pounds 50m fraud.

Mr Baker, like Mr Hopkins, is fighting disciplinary action by the SFA, and both believe they have been unfairly blamed. Mr Hopkins is expected to tell the MPs that he tried to blow the whistle on flaws in Barings' internal controls.

Separately, investigators in London and Frankfurt rejected reports from Germany that Nick Leeson, the former trader serving six and a half years in a Singapore jail for his role in the Barings collapse, has pounds 23m deposited in German bank accounts.

Mr Durlacher, referring to earlier versions of the story, said in the SFA's briefing that no evidence has emerged so far to support the claim about Mr Leeson's supposed deposit.

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