SIF's approval process continues to occupy the FSA's agenda

As the crux of the financial crisis becomes more apparent, the FSA is focusing on those at the top who could have prevented it (if they had understood it), but didn't. The Significant Influence Functions consultation requires firms to ensure that their top people -who have the ability to influence the future of a financial firm- have been properly vetted in terms of their competencies and understanding of risk.

The FSA has reserved the right to interview (at their offices), any individual who will be occupying such a function. If they find that the applicant does not have the abilities and competencies required, they can (and have) reject the appointment. So far 25 potential appointments have been rejected and the interviews are gathering speed.

Firms are well advised, to make sure that during the interviewing and vetting process, documentation to prove competency is obtained and retained. Previous experience, qualifications and personal references can all be used for this purpose.

Below, is the official press release and link to the full consultation:
_________________________________________________________________________

FSA outlines latest steps to address corporate governance at firms

The Financial Services Authority (FSA) has today issued a Consultation Paper (CP) on effective governance standards within firms.
As part of its supervisory enhancement programme, the FSA places greater emphasis on the role of senior management at firms. Since adopting this approach in 2008, the FSA has carried out 332 significant influence functions (SIF) interviews, with 25 candidates withdrawing from the process.
The FSA has issued a number of publications in this area, including a ‘Dear CEO’ letter in October 2009, which clarified its approach to approving and supervising persons performing SIFs. This CP explains this more intensive process in greater detail, but also makes clear that the intention is not to deter strong candidates from pursuing senior roles in firms.
Graeme Ashley-Fenn, FSA’s director of permissions, decisions and reporting, said:
“Our more intrusive approach continues to place a great deal of emphasis on governance and therefore the senior management at firms. This starts with a firm’s own due diligence. Our experience shows that once a firm gets its corporate governance right; with a strong and effective board, everything else flows from that.”
Walker Review
The proposals implement the FSA-specific recommendations in Sir David Walker’s review of corporate governance published in November last year. Where appropriate, listed banks and insurers are now strongly encouraged to establish board risk committees and appoint top executives as chief risk officers.
Sally Dewar, managing director of the FSA’s risk business unit, said:
“We have been very clear about our more intensive supervisory approach of firms and individuals, and our renewed focus on the quality of governance. We were fully supportive of Sir David's recommendations and this CP sets out how we intend to deliver them through our ongoing supervisory work and authorisation processes.”
Enhancing the SIF regime
Underpinning this intrusive approach, today’s paper consults on extending the scope of the SIF regime and introduces a new, more detailed framework of controlled functions. These will make clearer the exact role an individual is performing within a firm and increases the FSA’s ability to vet and track individuals as they move role. The FSA is also extending the regime to capture more individuals from parent companies who exert significant influence upon a UK regulated firm.
The consultation period closes on 28 April 2010. The FSA hopes to have final rules in place during the third quarter of 2010.

NOTES FOR EDITORS
1. The Consultation Paper can be found on the FSA website at: http://www.fsa.gov.uk/pubs/cp/cp10_03.pdf

Checking Business Involvements and approved persons

When a company checks on an individual employee or applicant, they sometimes neglect to check on this person's directorships and other business involvements. It is not unusual for a person to be the sole director of a small company which has accumulated judgements and other unsatisfied debts. As you can see from the FSA press release below, this can result in an approved person losign their ability to occupy a control function.
____________________________________________

FSA/PN/006/2010
14 January 2010
FSA bans insurance broker for failing in his duties as a director
The Financial Services Authority (FSA) has banned Stephen Allen, a director of insurance broker, Fabien Risk Services Ltd, for failing in his duties as a director of a regulated firm.
Allen’s ban means he is prohibited from holding any management role in the UK financial services industry and any role that requires FSA approval.
The action follows an investigation by the FSA that also resulted in the banning in 2007 of Allen’s co-director Shane Garvey and Fabien office manager Lee Goddard.
In late 2005 when Fabien was placed in creditors’ voluntary liquidation, the firm had suffered £700,000 in losses, of which £470,000 was owed to insurers, brokers and underwriters.
An FSA investigation revealed that Garvey authorised the withdrawal of client funds and Goddard complied with instructions to use the money to keep Fabien trading without Allen’s knowledge. The FSA therefore found that Garvey and Goddard lacked integrity.
Allen accepted that his lack of knowledge of Fabien’s bank accounts was a neglect of his duties and that he had failed in his duty as a director. As a result, it was concluded that, although Allen did not lack honesty or integrity, he lacked the competence to run a regulated firm.
Margaret Cole, director of enforcement and financial crime at the FSA, said:
“As a director there is an expectation that you are competent enough to look after client money; Allen did not fulfil this role as he failed to exercise closer scrutiny over Fabien’s accounting processes.
“We have clear rules about how a regulated firm should be run; Allen, Goddard, and Garvey failed to adhere to these rules and therefore showed themselves to be neither fit nor proper. Because of this, and the inherent risk they pose to consumers, we have taken tough action against all three: Garvey has been banned from working in the regulated financial services industry, Goddard from holding significant influence roles and Allen from any management role in the UK financial services industry and any role requiring FSA approval.”
Both Allen and Garvey held the Controlled Function 1 (director) position at Fabien; Goddard was not an approved person and his chief role was as accounts manager.