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Heavy-handed FSA ruffling recruiters

Timothy Barber
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WHEN the chairman of the Financial Services Authority&rsquo;s chairman, Lord Turner, made comments about taxing bonuses, it was not the first time that the regulator had ruffled feathers in the City. Indeed, recruiters in the Square Mile have been feeling added pressure from the FSA for almost a year now.<br /><br />According to information obtained through a Freedom of Information request by the law firm Reynolds Porter Chamberlain (RPC), between October 2008 and July this year almost one in 10 candidates for senior roles at large City companies withdrew their applications following interviews with the FSA, without waiting for a formal response from the regulator as to whether they had passed.<br /><br />Of 145 executives who had applied for senior management positions at leading institutions, 12 pulled out after being quizzed by the FSA, while three more withdrew before the interview. RPC lawyer Jonathan Davies describes this level of withdrawn applications as &ldquo;astonishingly high&rdquo;.<br /><br />So is the FSA stifling the business of the City by interfering in recruitment? While FSA involvement in this area is not new, the extent has increased. Previously, the FSA carried out background checks on applicants for the most senior positions to ensure they had not previously been involved in anything illegal.<br /><br />Following an internal audit review in the wake of the Northern Rock crisis, however, a decision was taken to ramp up its vetting procedure. The regulator began aggressively evaluating board-level applicants through face-to-face interviews in order to scrutinize individuals&rsquo; executive capabilities. The interviews test skills, behaviour, knowledge, and expertise, including ethics.<br /><br />&ldquo;The intended outcome, says a spokeswoman for the FSA, &ldquo;is that firms have competent boards whose composition is and remains appropriate to the firm&rsquo;s business model, and where the executive is subject to appropriate challenge.&rdquo;<br /><br />But critics worry that this is an interference too far. Jonathan Davies believes there are significant flaws in the process, and is concerned about the FSA entering into &ldquo;arm-twisting&rdquo; when it comes to its involvement in the recruitment process. He says there is a lack of clarity surrounding the FSA&rsquo;s interview criteria, and the publicising of unsuccessful appeals by companies makes challenges to the regulator&rsquo;s decisions on candidates unlikely, since both companies and applicants are unwilling to risk their reputations in public.<br /><br /><strong>FAIR PROCESS</strong><br />&ldquo;If you went through a procedure where there was a fair judicial process one would have some confidence in it,&rdquo; he says. &ldquo;What&rsquo;s actually happening is that applicants are being persuaded to withdraw, with the consequence that the entire process is not transparent, the criteria being applied are unclear, and one is left with a nasty suspicion that full process is not being followed.&rdquo;<br /><br />And it could get worse. Chris Pilling, the chief executive of Complinet &ndash; which advises firms on regulation &ndash; has warned that proposals outlined in the Walker review of banking rules could lead to further involvement from the FSA in recruitment processes. Complinet&rsquo;s vice president of global markets, Paul Johns, says the FSA should not directly interview someone for a job.<br /><br />&ldquo;If the role of the FSA is to intervene, why not simply put an enforcement agent in every bank? The FSA should put in place a set of rules around which someone can be interviewed, and it&rsquo;s up to risk and compliance departments to ensure this is adhered to.&rdquo;<br /><br />The FSA&rsquo;s meddling is certainly not welcomed by those in the recruitment field. But just how important is this story? Some think that, although it is making a lot of noise, the regulator will not actually change anything.<br /><br />As a senior executive at one head hunting firm told us: &ldquo;The general feeling is that the FSA could be a bit of a toothless tiger, because if the Conservatives get in they&rsquo;ll pull it apart and replace it with something else anyway.&rdquo;