Outgoing FSA chief executive Hector Sants has called for there to be greater individual accountability in the event of firm failure and wants to see senior management subject to tougher penalties.
Sants (pictured) used his last speech as FSA chief executive to set out firms’ responsibilities in having effective boards, hiring the right people for senior positions, and the regulator’s role in supervising boards and senior management. Sants also said he would like to encourage firms to place more emphasis on treating customers fairly when assessing an individual’s pay.
Speaking today at Merchant Taylors’ Hall in London, Sants said he felt “insufficient progress” has been made on effective corporate governance.
Over the last two years the FSA has introduced its significant influence function process to assess the suitability of candidates in roles such as chairperson, senior non-executive directors, chief executives and risk and finance directors.
Sants said during this time the FSA has determined 653 applications, following at least one SIF interview. Of these 48 were withdrawn, 39 of which were due to serious concerns identified by the FSA interview panel.
He said boards have in the past focused on boosting revenue and assets rather than asset quality.
Sants said: “In addition to incentivising the right behaviour there is also the question of the regulator’s role in deterrence. Following the Royal Bank of Scotland report the Government and the FSA are committed to a discussion paper on the governance of individual accountability for decision making.”
He argued that if someone is on the board of a bank that fails they should not be allowed to carry out that role in future.
He said: “It is important regulators operate a credible enforcement regime for individual wrongdoing, particularly in the conduct area. In this area much progress has been made to ensure the regulatory regime is seen as providing effective deterrence. However I believe it is vital penalties are raised above the current level so that momentum in this area is maintained.”
Sants noted the three major themes in many of his speeches were that people should be very frightened of the FSA, that most people in the financial services industry were decent and honest, and that good regulatory judgements should be aligned with good business judgements.
He said: “Supervision is not a negotiation with firms. Supervisors should make their own judgements and act on them.
“When I first joined the FSA I expressed this relationship in terms of working together in ‘partnership’ but I have now concluded that word does not best describe the nature of the relationship between the regulator and the regulated. Regulators and firms should neither be in a relationship of partnership or conflict but in constructive tension.”
Sants added: “Ultimately the purpose of financial markets is to serve everyone not the personal interests of individuals.”