SIB back on attack in pinpointing corporate culprits
Friday 25 July 1997
The SIB paper follows suggestions last September from the Securities and Futures Authority which raised eyebrows by suggesting managers should be considered personally responsible for failures unless they could prove their innocence. That reversal of the burden of proof was considered an infringement of managers' civil liberties and the latest proposals have been described as an attempt to achieve the same effect more acceptably.
Sir Andrew Large, chairman of SIB, said: "What we are proposing today places responsibility where it belongs. It is not the job of the regulators to micromanage firms. But we do have to be satisfied that firms know what they are doing, and can and do control the risks of their businesses."
He added: "We believe that the ability to hold senior management to account personally where internal controls are flawed and investors assets are put at risk will help raise standards."
The need for a tightening of the regulatory structure was underscored earlier this year when NatWest Markets admitted it had lost pounds 90m on a mispriced derivatives trade. That loss resulted in the resignation of Martin Owen, NWM's chief executive.The SFA is still deciding whether to take further action against individuals in the bank.
A report into the affair by Coopers & Lybrand found that losses were deliberately hidden for over two years by the creation of false profits and unauthorised transfers between trading books at the bank.
The proposals from SIB set out draft guidance on how regulated firms should conduct themselves. The suggestions cover a company's awareness of the risks it is taking, its internal structures and controls, and sections on contentious issues such as remuneration policy and bonuses.
There have been concerns that the bonus culture that is prevalent in the City encourages traders to take unnecessary risks. SIB proposes that firms should "design, build and use operating arrangements (including remuneration and bonus or other incentive systems) with a view to ensuring that they can not corrupt the integrity of the firm".
SIB also proposes that companies prepare a statement of their internal management structures and systems, so that managers are fully aware of their responsibilities.
The Board also hopes that the process of drawing up the statement will focus attention on the systems themselves and prevent problems associated with so-called matrix management systems which can allow responsibility to fall between managers.
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