Sib May Proffer Sops To Forestall Frauds In City

Sir Andrew Large, the chairman of the Securities and Investments Board, said that SIB was examining ways of rewarding financial firms that had good controls, such as effective internal auditing procedures.

SIB is to issue a discussion document on the principles of risk-based regulation in the new year. Sir Andrew said that SIB, the Citys chief regulator, wanted to eliminate any unnecessary regulation of well-managed companies that already controlled their risks well.

Techniques such as charging companies different levels of fees according to the degree of risk they appeared to be taking, or subjecting higher-risk firms to more prescriptive regulation, could both provide incentives and save money.

 

The expenditure involved in subjecting everyone - good and bad, risky and less risky - to the same approach could well be higher than where regulators deliver a differential approach, he told a Financial Times life insurance conference.

Sir Andrew said that increased competition between firms and the breakdown of barriers between financial industries, could lead to companies being encouraged to take higher levels of risk simply to preserve their profitability. In companies where the top managers exerted strong control, peer-group pressure tended to make individuals adhere to good practice.

Peer group pressure of this kind will be the cheapest form of regulation known, he said. Companies needed to examine three aspects of business more closely: * There were risks in paying individuals a large amount to make them star traders.

This could create financial incentives to behaviour which is harmful, and can lead to serious long-term damage to the firm as a whole.

* If a unit trust or investment fund managed by an individual seemed to be achieving exceptional returns, asset management firms should ask if it was due to superior expertise, or to undue risk, or even to some less desirable factor.

* If any business unit in a financial company appeared to be super-profitable then management may need to be sceptical about an individual who claimed to have acquired the Midas touch as a trader or salesman.