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Senior Management Responsibility for Systems and Controls what the FSA expects and how to respond Ian Mason Partner,

FSA focus on Senior Management responsibility. Importance of effective systems and controls

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Senior Management Responsibility for Systems and Controls what the FSA expects and how to respond Ian Mason Partner,

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    1. Senior Management Responsibility for Systems and Controls – what the FSA expects and how to respond Ian Mason Partner, Barlow Lyde & Gilbert

    2. FSA focus on Senior Management responsibility Importance of effective systems and controls “Dear CEO” letters More enforcement cases against senior management

    3. Effective systems and controls “A firm must take reasonable care to organise its affairs responsibly and effectively, with adequate risk management” (Principle 3) “A firm must take reasonable care to establish and maintain such systems and controls as are appropriate to its business” (SYSC 3.1.1 R ) “An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively” (Statement of Principle 5)

    4. Senior management systems and controls responsibilities – some examples Financial crime Conflicts of interest Treating customers fairly

    5. Dear CEO letters FSA increasingly uses this tool to identify areas of concern Examples: client money handling, conflicts of interest Important to engage senior management Consider response carefully FSA may check your response against subsequent information received

    6. When will the FSA take action against Senior Management? Liability under the FSA rules Liability under the Listing Rules Personal culpability

    7. FSA sanctions against individuals Criminal sanctions Fines Public censure Withdrawal of approval Prohibition Publicity

    8. Some recent Enforcement cases AIT Investment services UK/Mr Ram Melwani Shell/Sir Philip Watts

    9. Mitigating the risks Dealing effectively with the FSA The importance of documented procedures A risk-based approach Challenge and review

    10. Referrals to Enforcement The Supervision/Enforcement interface Taking a risk-based approach FSA is not an Enforcement-led regulator The importance of an appropriate response at the pre-referral stage

    11. Enforcement – the investigation stage Formal appointment of investigators The scoping visit Compulsory powers to require production of documents and to require witnesses to attend interviews Skilled persons reports Preliminary Investigation Report

    12. The Regulatory Decisions Committee (RDC) Part of the FSA, a sub-committee of the FSA Board Independent of Enforcement Division Composition: full-time Chairman + market practitioners + other public interest representatives Not a tribunal or a court, intended to provide an effective but fair process

    13. RDC procedure Warning notice Representations (written and/or oral) Decision notice 28 days to refer to the Tribunal Meetings are held in private

    14. The Financial Services and Markets Tribunal Completely independent of the FSA Not merely an appeal, new hearing Hearings normally held in public

    15. Settlement and mediation Strong incentives to settle (discount scheme on fines, Tribunal unlikely to award costs) Streamlined procedure for settlement – involves 2 FSA directors, not the RDC FSA mediation scheme

    16. Some current hot topics A “bold and resolute” approach to Enforcement De-regulation and the move towards a principles-based approach Deterrence and the level of fines

    17. Questions

    18. Contact Details – Ian Mason Direct dial 020 7643 7265 Email imason@blg.co.uk Address: Beaufort House, 15 St Botolph Street, London EC3A 7NJ

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