In the wake of Barings, Vanessa Knapp looks at proposals for the responsibilities of company senior executive officers
The Securities and Futures Authority (SFA) is proposing to change its rules and guidance on the responsibilities of senior management and senior executive officers (SEOs). This follows criticism of the SFA for failing to take action against Peter Baring and Andrew Tuckey, former chair and deputy chair of Barings.
There are three main elements to the proposed changes:
the SEO must take responsibility for ensuring that all employees act so as to avoid serious damage to the firm's finances or reputation as a regulated entity;
where such damage occurs it will be presumed that the SEO has failed to meet this duty unless he can show he took all reasonable steps to avoid it; and
the existing guidance on management responsibility will be extended to cover general management responsibilities as well as responsibility for general regulatory compliance.
Senior management and the SEO will have to take all reasonable steps to:
understand the firm's business or businesses;
ensure that responsibility for each activity is clearly established and communicated to those responsible;
ensure that those responsible fully understand the business they manage and its risks;
ensure the relevant internal controls – including independent risk management and clear segregation of duties – are established and work effectively;
regularly review existing and proposed commitments and follow up matters that the SEO thinks need further consideration;
immediately follow up warning signals of problems, ask all necessary questions and take action; and
follow up matters identified by internal audit as needing attention and ensure appropriate action is taken and completed expeditiously.
The SFA says the statement of the SEO's responsibilities is no more than “a compilation of present good practice”.
The authority recognises that, in a large, diverse business, the SEO cannot know and personally control every action of the firm.
It proposes to use the new powers only “in the most serious cases, where failure of management controls have clearly played a key role”.
However, the formulation of the management responsibilities and the reversal of the burden of proof it suggests should cause firms to consider carefully how to respond to the consultation document.