950811

British watchdog

SFA sharpens

teeth after Barings

LONDON: British markets regulator the Securities and Futures Authority is sharpening its teeth after February's $1.4 billion collapse of merchant bank Barings, creating a new Financial Risk Division to monitor member firms.

From September 1, the new unit will be responsible for scrutinising the financial soundness of securities firms, including risks from overseas subsidiaries, SFA chief executive Richard Farrant said in an interview on Friday.

The watchdog, which is currently probing Barings collapse, has already made its bite felt in the last year.

In the latest cases, coinciding with publication its 1994/95 report, it fined and expelled two traders, effectively barring them from the financial markets for life.

One, a former dealer at U.S investment bank Lehman Bros, issued false share valuations to clients, the other forged a signature on a property deal.

A senior NatWest Markets trader was also stripped of his registration as a "manager" over dealing irregularities.

The SFA is also facing one less challenge to its authority as Anthony O'Sullivan, a broker expelled last year after skimming commissions on Kuwait Investment Office (KIO) deals, has dropped attempts to gain a judicial review of the decision.

The new, initially 12 strong division, will be headed by Chris Woodburn, an accountant who is currently head of operations and the SFA's de facto number two after Farrant.

"We really feel there is such a huge potential for holes that we really want to pull out financial monitoring and make sure it's independent of ethical and conduct of business issues," Farrant said.

"We think its a way to improve what we do," he said.

The move follows Britain's Board of Banking Supervision's report last month into the Barings debacle, caused by futures and options trading by Singapore-based dealer Nick Leeson.

The SFA ranked behind Bank of England as Barings lead or so- called "consolidated regulator" and largely escaped criticism, though investigators called for sharper financial inspection.

"We wouldn't expect to be the consolidated regulator, but we would expect be be rather more sensitive than we were on the risks of subsidiaries like Barings Singapore to the whole operation," Farrant said.

The SFA suspended 12 of Barings former senior executives, including 11 board directors after the collapse. But its investigation -- where no completion date has yet been set -- is not limited just to former employees.

In the annual report, SFA chairman Christopher Sharples warned firms would be brought to book if they did not make sure internal controls and management systems were up to scratch. "Senior managers within SFA firms must realise they will be held accountable for failures in this area, however caused," he said.

"The collapse of Barings has reinforced the need to examine, with greater urgency, ways of improving regulatory standards and co-operation," Sharples added.

The SFA regulates 1,336 banks and brokers in all and oversees 40,237 people who are individually registered.

Despite Barings, the watchdog had only 124 justified complaints last year from seven million private client deals.

Formal warnings issued to member firms fell to 63 from 104 and prosecutions to 36 from 49.-Reuter