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FSA steps up scrutiny of senior management

The Financial Services Authority is looking to change the way it regulates the competence of senior management.

The regulator has published a consultation paper today which focuses on individuals with “significant influence” at a firm, particularly those responsible for corporate governance.

The paper includes proposals to clarify the role of non-executive directors and their accountability.

In the case of a company’s mismanagement, the FSA plans to look more closely at non-executives to investigate whether they should have intervened.

The regulator says it will consider enforcement action against senior management if they fail to demonstrate relevant experience and an understanding of their regulatory obligations.

Graeme Ashley-Fenn, director of permissions, decisions and reporting division at the FSA, says: “It is critical, not just for the firm, but for market confidence that our major institutions are soundly run by individuals who have clearly demonstrated that they have the necessary skills, experience and integrity.

“Our vetting process is not intended to be a substitute for a firm undertaking proper due diligence itself – responsibility for this still lies with a firm’s senior management. These proposals align with a shift in FSA focus: where a significant influence holder shows incompetence or dishonesty, we will consider enforcement action against him or her.”

The consultation period closes on March 31 2009. The FSA will then finalise the proposals and publish revised rules in a policy statement during Q2 next year.

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