SFA to get tougher on 'unfit'
Friday 12 May 1995
The Securities and Futures Authority is to take a much tougher line on deciding whether individuals or firms are "fit and proper" to work in the City.
evised fitness and proprietary criteria set out yesterday by the body that regulates all the organised City investment markets would give enhanced powers to force management changes on firms.
"This is definitely a toughening up, taken in the light of our experience," Christopher Sharples, chairman of the Authority, said. "We want to have the reserve powers to say someone is not good enough for the job."
The new criteria have been sent out for consultation among SFA members, and are expected to come into effect in late summer. Under consideration since last year, the proposals for enhancing the SFA's powers over managers and firms were given dramatic urgency by the Barings collapse.
A key change among the fitness criteria announced yesterday would give the SFA the right to judge the collective competence of a board of directors.
The SFA will enforce changes if it appears a board does not have full expertise in all aspects of the business; for example, if it is forced to rely on younger people for derivatives knowledge.
Derivatives appear to be a significant area of concern within the SFA, reflecting wider worries among the City regulatory bodies and the Treasury that company directors are encouraging derivatives trading whose complexity they do not sufficiently understand.
The SFA played down fears that the new rules will suddenly prompt mass vetting of member firms.
The main impact of the tougher requirements will be on new applicants, but they will also make clear that responsibility is on a firm to meet the competence criteria. If, through monitoring, problems come to light, the SFA will step in to oblige management changes.
"egulation is in some areas relatively intrusive. It is not just ticking boxes; it is to do with management control," Mr Sharples said.
"It is people who are the ones that make or break firms and who can cause the problems. We feel the need to have a handle on them to see if they are fit to do the job."
Mr Sharples said 99 per cent of SFA-registered firms would not be an issue, but there are always certain companies and individuals who prove to be unsuitable.
Other important new criteria will require any change in the controlling shareholder of a firm to be approved by the SFA before it takes effect.
A controller is a person or organisation that holds 15 per cent or more of another firm's equity or voting powers.
Firms will also be required to seek the approval of the Authority before appointing certain sensitive managers, such as the senior executive officer, compliance officer or finance officer.
The SFA will also be able to take account of future events, such as impending court cases, that could put into question a firm's or individual's fitness and propriety.
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