June 5, 2012 9:58 pm

FSA relaxes scrutiny of some City roles

The top City regulator is relaxing its scrutiny of non-executive recruits to banks and other financial services groups amid company complaints that the tests hinder them in making appointments.

The industry has noticed a sharp drop-off in the number of candidates for board posts at financial groups that have been called for interview by the Financial Services Authority.

Hector Sants, the outgoing chief executive of the FSA, said recently that only in exceptional circumstances would the FSA interview non-executive directors, unless they intended to occupy senior roles, such as becoming chairman of the audit or risk committee.

The change in approach represents a marked shift from the line adopted four years ago after the financial crisis, the collapse of Lehmans and government rescue of Royal Bank of Scotland, when the FSA undertook to examine all candidates to become board members.

The high level of scrutiny, which included interviews by a panel of financial industry grandees, also led many candidates to withdraw their applications to become non-executive directors of some of the UK’s biggest financial services companies.

The FSA has also admitted that it has struggled to attract City heavyweights to commit enough time to examining the big hitters it was seeking to attract as financial services non-executives.

Last week, Prudential faced criticism from some investors for not casting its net widely enough when it concluded that its senior independent director, Paul Manduca, was the right person to succeed Harvey McGrath as chairman of the life assurer.

Some bosses in the sector are critical of the FSA’s focus on ensuring that non-executive directors have specialist experience of financial services. They point out that it not only limits the pool of applicants but runs counter to increasing pressure on the industry to bring in directors with more diverse experience. UK and European politicians have increasingly called for boards to avoid what they describe as “group think”.

Martin Gilbert, chief executive of Aberdeen Asset Management, said the FSA has noticeably scaled back its involvement in board recruitment. “A few years ago, the FSA interviewed anyone joining the board of a financial services company. Now they are interviewing only prospective chairmen and the heads of the risk and audit committees because the FSA realised that it was becoming increasingly difficult to get people to put their names forward. And it was leading to only those people with financial services backgrounds getting through.”

Promontory, a regulatory consultant that prepares candidates for selection and the interview , said the FSA is calling far fewer non-executive directors for interview than it was six to nine months ago.

Michael Foot, Promontory chairman, said that while the interview process is being relaxed in general, it is now more targeted so that if a company has been a matter of concern in the past then its board recruits will still be carefully scrutinised.

“The FSA will routinely ask to see those up for chairmanships or for directorships on risk and audit committees. It might waive that if they know the individual really well and if the FSA does not have major concerns about the firms.”

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

SHARE THIS QUOTE