FSA director of UK banks & building societies Andrew Bailey has criticised the role of risk management within firms, saying it is not the regulator’s job to carry out that role for them.
Bailey, who is also deputy head of the FSA’s prudential business unit, joined the FSA in April from the Bank of England where he was executive director for banking services.
Speaking at the Association of Private Client Investment Managers and Stockbrokers annual conference in London yesterday Bailey (pictured) argued it was important that risk management and internal audit departments need to be able to argue their case strongly within companies.
He said: “To be frank, I think one of the relatively untold stories of the financial crisis concerns how little attention these functions have attracted. Boards and senior management are at the heart of the responsibility for running a firm. They must be supported by robust and well-functioning risk and audit functions, both internal and external to support them.
“Unfortunately, when I look across the landscape, I do not believe we are in the right place today in terms of the role and influence of these risks and audit functions.”
Bailey added the regulator should not be expected to carry out firms’ risk management and internal audits on their behalf, and said checking a “long shopping list of compliance points” is the responsibility of firms’ internal auditors.
He said: “It is dangerous if the supervisor is assumed to fill the role of the risk and audit functions. That is not our job. If we were to operate at that more detailed level, we would be much larger and, critically, we would lose our focus.”
The FSA is aiming to have moved to the new regulatory structure of the Prudential Regulation Authority and the Financial Conduct Authority by 2013. Bailey said the FSA is close to halfway through the process of replacing the FSA with the two new regulatory bodies.