Further developments relating to the responsibility of senior executives

On 1st May, SFA (in Board Notice 473) and FSA (in a press release) announced further developments in relation to the long-running saga of the rules relating to the responsibility of senior management.

Whilst FSA announced that it had formed a working group to look into the responsibilities of senior management in order to take forward work already undertaken by the regulators, the SFA confirmed that it would be implementing its own proposals which it had set out in Board Notice 439 back in September 1997.

In effect, this was an acknowledgement that there would be a two-stream approach to responsibilities until the Financial Services Reform Act is passed.

The FSA has announced that, for the first time, the responsibility of senior management for the compliant conduct of a business is to be made a general principle. This is particularly important as the majority of disciplinary proceedings undertaken by the regulators include action for breach of general

Principles, as they are, by nature, broadly defined and therefore more difficult for the "accused" to refute.

The SFA has issued detailed rules in relation to management conduct, and these should be required reading for Compliance Officers and other senior staff at SFA regulated firms. In summary, each member of SFA must (as at present) appoint a:

• senior executive officer;
• compliance officer; and
• finance officer

and (this is new) the senior executive officer must take reasonable steps to organise and manage the firm in accordance with regulatory requirements. The proper direction and control of a firm's business requires comprehensive and detailed knowledge of its affairs by senior management, and SFA expects the Senior Executive Officer to have arrangements in place designed to ensure that senior management as a whole has the required knowledge.