FSA Annual Report 2006/07 - Better Regulation Ltd

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