The FSA consults on firms senior management responsibilities

Howard Davies, chairman of the FSA, said:

"The Financial Services and Markets Bill requires the FSA to regulate in a way which recognises the responsibility of senior management to manage firms and to ensure firms compliance with regulatory requirements. The proposals in this paper are designed to reinforce effective senior management and internal systems of control. The aim is thereby to ensure that fewer detailed FSA rules are needed."

The Paper sets out draft Rules and Guidance which will require a firm:

to take reasonable care to establish and maintain an appropriate apportionment of responsibilities among its directors and senior managers in a way that makes their individual responsibilities clear

to take reasonable care to establish and maintain systems and controls appropriate to the scale, nature and complexity of its business

to give its most senior executive, alone or with other senior executives - responsibility for apportioning senior management responsibilities and for overseeing the establishment and maintenance of the firms systems and controls.

The proposed approach will:

operate in line with accepted standards of good business practice and reinforce those standards where they relate to matters of regulatory interest

provide an impetus to firms currently falling below the expected standard to clarify responsibilities

ensure that systems and controls requirements will be proportionate to the size and nature of a firms business

increase regulatory certainty by amplifying the FSA Principle on Management and Control which states that firms must take reasonable care to organise and control their affairs responsibly and effectively, with adequate risk management systems

leave firms with considerable latitude on how they organise operationally to meet this Principle

not burden non-executive directors with duties additional to those which they are currently expected to perform in normal circumstances.

The publication of the Paper marks a significant phase in the development of the FSAs single Handbook of Rules and Guidance which is due to come into force when the Financial Services and Markets Bill becomes effective. The main elements of Block 1 of the Handbook covering high-level standards - Principles for Businesses, Qualifying Conditions for Authorisation, Regulation of Approved Persons and Senior Management Responsibilities - have all now been issued for consultation. Responses to the consultation in all these areas will be considered together before final policy decisions are taken.

The FSA is interested to hear the views of firms and other interested parties on the proposals set out in the Consultation Paper. Comments should be received by 29 February 2000.

Notes for editors

Consultation Paper 35 " Senior Management Arrangements, Systems and Controls" proposes Rules and Guidance to:

set out the regulatory obligations for firms building on FSA Principle 3 for Management and Control and on the Qualifying Conditions for Authorisation set out in the Financial Services and Markets Bill

clarify the regulatory obligations of individual senior managers and directors who are approved persons under the FSAs proposed Approved Persons regime

ensure that these two sets of obligations are effectively linked.

The post-consultation version of the FSA Principles are set out in "The FSAs Principles for Business: Response on Consultation Paper 13" (October 1999). More information about the FSAs thinking on Qualifying Conditions for Authorisation and regulation of approved persons can be found respectively in the "The Qualifying Conditions for Authorisation: Response on Consultation Paper 20" (October 1999) and Consultation Paper 26 "The Regulation of Approved Persons" (July 1999).

The FSA Handbook of Rules and Guidance is planned for publication before the Financial Services and Markets Bill becomes effective - expected to be the second half of 2000.

The Financial Services and Markets Bill received its Second Reading in the House of Commons on 28 June and is expected to receive Royal Assent in the first half of 2000.

The Consultation Paper is available priced 10 by sending a cheque payable to the FSA to the FSAs Sales and Distribution Department. Alternatively the Consultation Paper can be found on this Website: http://www.fsa.gov.uk/pdf/cp35.pdf