Learning a Hard Lesson
Before February 2009, admitting that one worked in financial services regulation generated a similar response to admitting that one was a dentist - vital but dull. These days our profession has been thrust into the headlines, friends and colleagues are being interviewed on Sky & BBC and regulation & corporate governance are both water-cooler topics.
It would be inappropriate to sit in judgement of the HBOS affair or FSA, as we can all read and have independent thoughts on the facts as they emerge. However recent comments attributed to Paul Moore raised some eyebrows, after he said the industry needs "much more formal qualifications and competencies for risk managers and compliance professionals so that only fit, proper and competent people can be appointed as CF10, CF11 and 14” and that “These roles are becoming as important as CFO role and need something like the ICA / Institute of Actuaries to regulate their training and competence".
The industry already has the Compliance Institute, which has been in existence for over a decade. Its predecessor, the UK Association of Compliance Officers, arose from another financial drama, the Blue Arrow affair, at the very start of financial services regulation. And, in terms of qualifications, the Compliance Institute has their qualification leading to Associateship or Fellowship in association with Warwick University Business School.
Whilst it is true that there is no absolute requirement for CF10, 11 and 14 to have a formal qualification, it would be surprising if a Board appointed anyone to these key roles if they could not demonstrate appropriate qualifications, skills, experience and competencies. The obligations under SYSC are clear - not to mention FSA Principles 2 and 3!
The FSA has stringent standards for Approved Person (AP) status. The December 2008 Consultative Paper, CP08/25, has proposed strengthening the AP regime, to extend the definitions of CF1 (director) and CF2 (non-executive director), to clarify the role of NEDs within their Code of Practice for APs.
This seems to be key to reducing the likelihood of another HBOS saga. Strong, powerful, dynamic and driven Chief Executives are needed to drive their businesses forward, to inspire and to lead. However, they need to be controlled, to be challenged, to be kept in check. The people to do this are the NEDs, and the continual evolution of this role must continue to be high on the FSA agenda.
Whilst Higgs challenged the old boys' club and sought proper considered selection of suitable NEDs, and Tyson encouraged training and development of NED skills, the next step is for the FSA to implement their proposals which would ensure that NEDs:
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Assisted executive colleagues within the firm's governing body in setting and monitoring the firm's strategy
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Provided an independent perspective to the overall running of the business, scrutinising the approach of executive management, the firm's performance and standards of conduct
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Carried other responsibilities on Board Committees.
Historically, FSA indicated that it would not discipline NEDs when things went wrong as long as they acted within their prescribed roles and responsibilities. However, in future, FSA will look much more closely where there has been continued poor decision making by the executive.
Being a NED has, for some years, no longer been the "gravy train" of corporate lunches, and that is absolutely as it should be. However the real threat of FSA action, in the event of repeated corporate failures, rightly places responsibility for controlling and challenging the executive exactly where it should be. It is hoped that, in future, Risk Directors will feel that they have had a fair and considered hearing, and not be the man in a rowing boat trying to make the tanker change course.
Written by Tracy Harvey-Bussell, The Consulting Consortium Ltd
