[Extract from the conclusion of the Bank Of England Report on the Collapse of Barings]

THE SECURITIES AND FUTURES AUTHORITY (SFA)

13.71

As noted in Section 1 of this report, the conclusion here
expressed are those of the independent members of the Board. The
ex-officio members have not participated in the formulation of the
conclusions set out in this part of the report because of the
potential overlap between responsibilities of the SFA and the Bank.

13.72

The SFA was at all relevant times the regulator of BSL and BSLL.
The regulation was primarily carried out by its Surveillance
Division. 

13.73

The review of financial return submitted to the SFA and the annual
review of the systems and methods used to prepare and complete the
returns were the SFA's principal methods of supervising BSL and
BSLL's financial resources and checking that customer assets were
properly safeguarded. In addition, the external auditor, C&L,
reported to the SFA annually.

13.74

The information provided by BSL to the SFA on the Segregated
Account Reporting Statements (SARS) did not until a late stage
include the advance margins placed with exchanges ostensibly on
behalf of clients because the BSINGCOLL account (which reflects
the advance margins funded by BSL) did not feature in those
returns. In 1994 margin excesses of up to £35 million had been
shown by BSL in its returns; but they were not so great or unusual
that they should have attracted the attention of the SFA, whose
principal interest in the SARS was to check that it did not show a 
deficit. The BSINGCOLL account was (for the first time) included in
the SARS for the period up to 31 January 1995, delivered to the
SFA on 22 February 1995. It showed a margin excess of nearly $160
million, apparently indicating that BSL had advanced on behalf of
clients substantial amounts in excess of those actually required
for their margins. The revelation of so large a figure could have
caused the SFA to investigate further, but by then it was too late.

13.75

The SFA did not regard itself as required to consider the
activities or financial position of the subsidiaries of BSL and
considered that its responsibilities with regard to subsidiaries
were limited to the express notification of requirements relating
to subsidiaries set out in its rules. However, we consider that
the SFA's responsibility for monitoring a member firm's obligation
to maintain adequate financial resources to meet its investment
business commitments and to withstand the risks to which its
business is subject requires it to have regard to the activities
and financial soundness of a member firm's subsidiaries insofar as
they are capable of materially affecting the financial integrity
of the member firm.

13.76

A consequence of the SFA's perception of what it was required to do
was that the individuals concerned on behalf of the SFA with the
regulation of BSL did not give consideration to the question of
whether or to what extent BSL's exposure to its subsidiary BFS
might adversely affect BSL's financial integrity. We consider that
a wider lesson should be drawn from this, to which we refer in
Section 14.

13.77

The SFA knew, or should have known, from the ample information in
the public domain that the Far Eastern operations were very
significant to BSL. However, BSL did not provide the SFA with
accurate financial returns; and BSL at no time informed the SFA of
any exposure that it had to BFS or BSJ or of the level and nature
of BSL's funding of BFS's trading activities. The financial
returns submitted by BSL to the SFA did show substantial balances
receivable by BSL from its affiliates in aggregate; for example £178
million at 31 December 1993 and £254 million at 31 December 1994,
having risen to over £500 million in May 1994. We consider that the
SFA's regulation of BSL should have had regard to any material
exposure of BSL to its affiliates; but on the information contained
in the returns submitted by BSL to the SFA, and given the SFA's
perception of those balances (which was that they represented
transactions undertaken through affiliates on behalf of clients) we
consider that it would not be right to criticise the SFA for failing
to raise queries as to those balances on receipt and appraisal of the
returns.