Central Bank rebukes stockbroking and investment firms

The Central Bank has effectively told the boards of stockbroking and investment firms to get their act together after a review showed the industry was falling short of identifying potentially catastrophic risks.

The letter, which was sent to all investment and stockbrokers and firms that supply services to the funds industry, strikes a legal note by saying it was “without prejudice to any future guidance that the Central Bank may issue in relation to risk management”.

The onsite review which was undertaken by its Markets Supervision Directorate was one of what the Central Bank calls its “themed inspections” of firms it regulates. It involved reviewing a sample of firms.

It found that the process of assessing risks companies had applied on the ground fell far short of what was actually required, with “many of the good practises identified in the firms’ documentation are not always evident in the operations of the business”, wrote deputy head Des Ritchie at the Markets Supervision Directorate.

In the letter, Mr Ritchie stressed that the responsibility of getting things right ultimately remains with the boards of the firms.

“Undoubtedly, identifying risks and the process in place to manage and mitigate those risks is essential for all firms,” Mr Ritchie wrote.

“Critical to this is the risk function, which is the responsibility of the management of the entity in the first instance and ultimately with the board of directors.

“However, it is the board who empower the risk framework, through robust governance arrangements, to ensure it has the necessary processes and systems in place to manage and mitigate the risks of each firm.”

The letter said it was the responsibility of the boards to “continuously examine” the polices designed to prevent financial shocks.

The Central Bank would not say how many firms were involved in the review or list the specific nature of the shortcomings that were identified in the sample.

However, the tone of the letter makes clear that the Central Bank is concerned enough to issue the reprimand to board directors.

“Where issues have been identified in relation to the risk function we are following up directly with firms to address these issues,” the letter said.

The Central Bank said that the letter must be sent to each board director, risk officer, and senior manager.