BoE to beef up banking supervision

Barings executive tells MPs of warnings ignored on eve of Arthur Andersen recommendations

The Bank of England will today complete an overhaul of banking supervision resulting from the Barings crisis by announcing plans to beef up and enlarge its supervision department and establish a high-level quality assurance unit.

The plans emerge a day after a Commons Select Committee was told by Ian Hopkins, the former treasurer of Barings Investment Bank, that he had repeatedly warned of poor supervisory controls at Barings, but been ignored by Peter Norris, his boss.

Mr Hopkins also described ''turf wars'', shouting matches and table banging in discussions of supervisory issues with other Barings senior staff, and claimed that if his plans for improvements had not been obstructed the group might have been saved.

The Bank of England is basing its wide-ranging new supervisory reorganisation on a report commissioned last October from Arthur Andersen, the chartered accountants. The Banking Act annual report in May said supervisory and surveillance staff numbers would rise from 384 this February to 391 next February, but further increases are likely.

A significant attempt to improve the standing of the supervision department has already been foreshadowed by Howard Davies, the Deputy Governor, who has suggested all the Bank's high-flyers spend some time in the department, whose morale crashed after Barings.

The Banking Act report said Arthur Andersen was comparing the supervision department with other regulators in the UK and abroad, interviewing a wide range of banks, studying the way bank staff use their time and examining recruitment, staff retention and training, and levels of qualification.

Part of the review's brief was to set out clear objectives for supervision, it added.

Arthur Andersen was asked to draw up recommendations for an independent and high-powered quality assurance unit to watch over the supervision department, to ensure policies are implemented and to identify where they need to be reviewed.

This was based on a proposal in the report on Barings last year by the Board of Banking Supervision (Bobs). Part of the new Arthur Andersen-designed system was given a trial run in March. It is one of only two of the Bobs' 17 recommendations yet to be implemented.

At the select committee, Mr Hopkins said he believed the Bank of England supervisors should be more interventionist but he reserved more blame for the Securities and Futures Authority, saying: "I see the regulatory failure on the SFA side rather than the Bank of England side.''

Mr Hopkins, with Ron Baker, is one of two former Barings executives fighting disciplinary proceedings by the SFA.

Mr Hopkins insisted that he had told Mr Norris of problems in reconciling accounting balances at Barings in October 1994. Committee members pointed out that Mr Norris, who has been disciplined and suspended by the SFA, had claimed ignorance of these key signals until February 1995, just before the collapse.

Mr Hopkins said he told Mr Norris a regional treasurer should be based in Hong Kong at a cost of pounds 200,000 a year. This, he believed, would have prevented the problems escalating, but he had been turned down on grounds of cost.

He said there was a "hidden agenda'' because the individual he had in mind for the job was from the banking side of Barings and not the securities operation.

Mr Hopkins said he had discovered persistent breaches of Baring Securities foreign exchange exposure limits, which were exceeded by 100 per cent for most of a year, but he expressed puzzlement that when the Bank of England was told it had taken no action.

Mr Hopkins said when he had first flagged the foreign exchange problem at a meeting at Barings he was "shouted down by everyone in the room saying 'there's no currency risk' ".

When he was moved from the bank to the securities arm of Barings in September 1994, Mr Hopkins said he found "anything but a well-run organisation". On the risk management side, he was left with "somebody who had been in the organisation for three months plus a temp".

But senior management did not listen to his verbal and written demands for more resources. Mr Hopkins cited in particular Mr Norris, who had been running the business for two years and "took my comments as being critical of the structure he put in place''.

He added that James Bax, head of the Far East operations, was also "sensitive to problems emerging on his home patch and wanting to look after them by himself''.

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