FSA Annual Report 2006/07 - Better Regulation Ltd
FSA Annual Report 2006/07 - Better Regulation Ltd
FSA Annual Report 2006/07 - Better Regulation Ltd
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Section five – Corporate governance statement and remuneration report<br />
<strong>FSA</strong> <strong>Annual</strong> <strong>Report</strong> <strong>2006</strong>/<strong>07</strong><br />
67<br />
In reviewing the risks, the<br />
Committee has considered whether<br />
the Executive has correctly assessed<br />
the risk by challenging the Executive<br />
on the risk rating and the actions<br />
taken to address the risk. The<br />
Committee has analysed the risk so<br />
as to form their own conclusion on<br />
whether the risk rating is<br />
appropriate and the mitigation<br />
strategy effective. The Committee<br />
has also considered whether there<br />
are other risks that should be<br />
reviewed. The Committee is aware<br />
that a proportionate approach to<br />
risk management is required, given<br />
that it is not possible to eliminate<br />
risks from the system. The<br />
Committee’s feedback on risk areas<br />
is reported back to the Board at its<br />
next meeting and into the risk<br />
management system as required.<br />
Over the year the Committee has<br />
considered a diverse range of risks<br />
and mitigation strategies including:<br />
• international crisis management<br />
and co-operation including the<br />
consequences of avian flu on<br />
financial markets and markets’<br />
resilience to external shocks;<br />
• the difficulties involved in<br />
tackling financial crime;<br />
• excessive levels of credit;<br />
• high levels of leveraged finance<br />
and the likelihood of a failure;<br />
• the impact of changes in UK<br />
bankruptcy law for consumers<br />
and firms;<br />
• private equity, focusing on the<br />
level of capital moving from<br />
public markets into private equity<br />
funds; and<br />
• the implications of credit<br />
derivatives for financial markets.<br />
Internal controls<br />
The Board is responsible for<br />
ensuring that a system of internal<br />
controls is in place, and for<br />
reviewing its effectiveness. The<br />
system is designed to provide<br />
reasonable, but not absolute,<br />
assurance against material<br />
misstatement or loss and to manage<br />
rather than eliminate risks to the<br />
<strong>FSA</strong>’s statutory objectives. The<br />
Board’s policy on internal controls<br />
and risk management includes<br />
established processes and procedures<br />
for identifying, evaluating and<br />
managing the significant risks faced<br />
by the <strong>FSA</strong>.<br />
The Board believes that the<br />
processes are in line with the<br />
guidance set out in the Turnbull<br />
<strong>Report</strong>. They have been in place<br />
throughout the year and up to the<br />
date of the approval of the <strong>Report</strong><br />
and Accounts. They are intended to<br />
ensure that, in the event of a<br />
problem arising, it is drawn to the<br />
attention of management in a timely<br />
way and appropriate remedial action<br />
taken.<br />
In accordance with FSMA Schedule<br />
1 Part I 4 (3)(b) NedCo, in<br />
conjunction with the Audit and Risk<br />
Committees, assists the Board by<br />
undertaking reviews of the adequacy<br />
of the control processes and<br />
challenging the executive on their<br />
effectiveness.<br />
Regulatory Decisions<br />
Committee (RDC)<br />
Members of the RDC are appointed<br />
by the Board. The Board receives<br />
quarterly reports from the RDC<br />
Chairman, who also attends Board<br />
meetings to discuss significant<br />
matters in those reports. During the<br />
year the RDC Chairman reviewed<br />
the balance and composition of the<br />
Committee and discussed general<br />
succession planning with the Board.<br />
More details on the role and<br />
membership of the RDC can be<br />
found on the <strong>FSA</strong> website.<br />
Listing Authority Committees<br />
The Board has two listing<br />
committees made up of external<br />
practitioners to advise the Board and<br />
review elements of the <strong>FSA</strong>’s<br />
function as the competent authority<br />
for listing in the UK. The Listing<br />
Authority Advisory Committee<br />
(LAAC) met three times during the<br />
year, with smaller sub-groups<br />
meeting more frequently to consider<br />
particular issues. The Chairman<br />
provided reports to the Board on<br />
relevant issues, twice by attendance.<br />
During the year LAAC reviewed its<br />
terms of reference and composition.<br />
LAAC also oversaw a market user<br />
survey following the implementation<br />
of the new listing and prospectus<br />
rules. More information can be<br />
found on page 23.<br />
The Listing Authority Review<br />
Committee, whose role is as a<br />
technical appeal committee, has not<br />
been called during the year. More<br />
details on membership of the<br />
committees can be found on the <strong>FSA</strong><br />
website.