FSA persuades applicants for Managing Director, CEO and Finance Director roles to quit
Risk that natural justice may be denied

The FSA's more interventionist role in scrutinising new senior management jobs at large financial services firms has forced firms to drop nearly one in ten (9%) of applicants as the FSA had indicated that they may reject applicants they do not approve of says Reynolds Porter Chamberlain (RPC), the City law firm.*

12 of those candidates for senior jobs in "high impact" firms had their applications dropped after interviews where they were quizzed by the FSA over issues relating to their "necessary skills, experience and integrity" for the role. A further three applicants for senior roles withdrew their applications in the run up to those interviews.

The FSA has admitted that: "in a number of cases applications have been withdrawn following interviews that raised questions concerning the candidate's fitness or competence."

RPC says that at present there is no practical method for firms to appeal if they feel the FSA's concerns about a candidate are unfounded. The law firm explains that if they do launch a formal appeal and lose the FSA would make a public statement announcing that they had rejected that candidate.

Explains Jonathan Davies, Partner: "In the current environment no financial services company would want to take the risk of being publicly accused of putting forward a supposedly substandard candidate for the job. The reputational damage to the company would be huge and the ensuing publicity might severely restrict the candidate's ability to find another senior job."

"Nobody objects to regulators having teeth and claws but they have to be careful not to abuse their powers. There is the concern about just how much arm twisting the FSA is entering into to force companies into dropping their preferred job candidates."

The law firm says that says that one solution to the problem might be for the result of appeals against an FSA decision to reject a candidate to remain confidential. That way firms would have the confidence to back up a candidate they felt brought the right skills to the job.

Jonathan Davies also says that although the FSA has every right to oppose candidates that it believes are not fit and proper persons or do not have the competence to do the job they are being appointed to, it needs to avoid trying to impose its view of what the "right" candidate for senior positions should be.

Says Jonathan Davies: "It would be a worrying development if the FSA were to develop an all powerful veto against senior appointments in the financial services sector."

RPC says that the new data on senior applications follow proposals recently confirmed by the FSA to require directors and employees of the parent and holding companies of FSA authorised firms to be approved by the FSA if their decisions or actions are regularly taken into account by the Board of the UK authorised firm.

Adds Jonathan Davies: "Overseas personnel who are called in front of an FSA interview panel for approval will not be impressed if they face the same hard-nosed tactics the FSA seems to be applying to British candidates."

* Following a Freedom of Information Act request the FSA released data to RPC revealing that 15 applicants for senior roles ("Significant Influence Functions") have withdrawn their application for FSA approval before receiving a formal response from the Regulator. At the stage of their withdrawals only 147 had been interviewed by the FSA, with a further 27 arranged or to be arranged. The data cover the period October 2008 (when the FSA introduced its new policy of interviewing "Significant Influence Functions") to July 31 2009.

The FSA is conducting mandatory interviews for the following Significant Influence Function roles at "high impact" firms, i.e. the largest firms:

  • Finance Director
  • Risk Director
  • Chief Executive
  • Group Finance