SFA to tackle accountability at senior levels

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The Independent Online
New rules to be published today by the Securities and Futures Authority will make it easier to discipline senior executives of City firms such as Barings that get into serious trouble.

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

A key element of the SFA proposals is that if there is a catastrophic failure the burden of proof will be shifted, so that top executives will have to demonstrate that they have properly used all their powers.

At present, the burden is the other way round, because the SFA must prove the executives have failed to do their duty, which is a much harder task. Any shift in the burden of proof is likely to be highly controversial among SFA members.

The SFA's present rule-book says senior executives have ultimate responsibility for compliance with the rules. But the statement is so general it has proved impossible in cases such as Barings to pin down any specific offence on which charges can be brought.

Under the new proposals, which are being circulated for consultation, top executives could be prosecuted by the securities regulator for falling down on a number of more specific management responsibilities, such as ensuring proper control systems are in place.

Nick Durlacher, chairman of the SFA, confirmed that the SFA proposed a change in the burden of proof in the case of catastrophic failures. He said: "It will be up to senior executives to demonstrate that they have discharged all their powers."

The other main thrust of the document will be more detailed guidance on the responsibilities of senior managements.

The new rules are expected to spell out several objectives senior executives must aim for, including the standards by which they manage the business, the quality of internal controls and the adequacy of risk management. The SFA is also expected to change its rules to allow the regulator to say more in public about cases it investigates.

The SFA has has refused to say whether the proposed new rules would have led to prosecutions of Mr Baring and Mr Tuckey.

In the summer, Mr Durlacher said inquiries "did not uncover evidence of wrongdoing by them that would have sustained a prosecution for rule breaches".