Regulator outlines latest steps to address corporate governance at firms

The FSA has today issued a consultation paper on effective governance standards within firms.

As part of its supervisory enhancement programme, the FSA is placing greater emphasis on the role of senior management at firms. Since adopting the approach in 2008, the FSA has carried out 332 significant influence functions interviews (SIF), 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. The consultation paper explains teh FSA's 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 consultation paper sets out how we intend to deliver them through our ongoing supervisory work and authorisation processes.”

The paper consults on extending the scope of the SIF regime and introduces a new, more detailed framework of controlled functions. The FSA said 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.