Only a matter of days after Hector Sants’ speech on corporate governance (see previous article) the FSA published Final Notices relating to corporate governance failings by Mitsui Sumitomo Insurance Company (Europe) Ltd (Mitsui).
Whilst Mitsui may be an insurance company and part of one of the world’s largest non-life insurance groups, the issues that led to enforcement action are relevant to all firms. The key regulatory provision in the Final Notice was a failure of Principle 3 “A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems”; there was no customer loss as such and it is acknowledged that Mitsui did not financially benefit from the breach.
It is interesting that the summary references the importance of adequate management information; the need to have senior management with the necessary skills; and for the board having a full understanding of the business model – reflecting the three key components of effective corporate governance highlighted in the speech by Mr Sants.
A previous ARROW visit had also commented upon the need to appoint a suitably experienced independent Non-Executive Director (NED) – Regulatory Roundup 39 contains a link to the FSA’s guidance on its expectations of NEDs.
For a three month period the firm also failed to hold sufficient capital to meet its Individual Capital Guidance, which in itself could have constituted a breach of Threshold Condition 4 and of GENPRU 1.2.26R.
For its failings Mitsui was subject to a financial penalty of £3.345M.
The pain didn’t stop there as Mitsui’s Chief Executive, Mr Yohichi Kumagai, incurred a financial penalty of £119,303 and was also subject to a Prohibition Order (which basically prevents him from performing just about any Controlled Function) for failing to ensure adequate corporate governance and control arrangements were in place. This acts as a reminder that whilst the Handbook contains the 11 Principles (PRIN) applicable to all firms, it also contains the sometimes lesser known Principles and Code of Practice (APER) which is applicable to approved persons.
Tracey McDermott, acting FSA Director of Enforcement and Financial Crime, was, following issuance of the Final Notices, quoted as saying “If those who hold senior positions in financial services firms had had any doubt about how seriously we view their regulatory responsibilities this fine and ban should make our position clear”.
