tropical storm fay August 17, 2008
Posted by Bradley in : risk , add a commentWe’re beginning the new school year watching tropical storm Fay via the national hurricane center. She seems to be heading west of us right now. But, as always, we can feel guilty for avoiding the pain that falls on others.
rrac takes action (on trees) July 19, 2008
Posted by Bradley in : risk , add a commentIn April, I noted that the RRAC, formed in January, did not seem to have done all that much. While I wasn’t watching they did publish a press release asking for common sense about tree inspection standards (noted here in the FT). It seems that the British Standards Institute has produced a draft standard on tree inspections (currently available on registration via the BSI’s Draft Review System (and here)(comments due by the end of this month). The Chair of the RRAC, Rick Haythornthwaite, is quoted in the press release as saying:
The plans for trees are an example of the dangerous bureaucratic spiral which can be caused by the complex interactions of different groups. Those who fear they might be held liable in the event of some incident look for compliance standards to remove legal uncertainties. Then there are “risk entrepreneurs” among treecare professionals who thrive on maximising the perception of risk in order to create standards for which they are perfectly placed to provide profitable solutions. Public and media opinion will often tend to agree that ’something must be done’ in light of one or more tragic events. The result can too easily be new regulations introduced without a balanced assessment of the true level of risk against the possible wider damage which can be done by heavy-handed regulation.
I’m not sure why the BSI thought a standard for tree inspections was a good idea. And this standard seems to mix up a number of issues - it’s not, for example just about what an arboriculturalist should do in carrying out a tree inspection for the purposes of satisfying contractual obligations. The draft standard also addresses the question of when a property owner should carry out inspections (although not with much clarity or certainty). However, some of the RRAC’s concern seems to me to be overstated. The draft standard states clearly that compliance with its provisions would not confer legal immunity (thus likely limiting its usefulness), and it also states:
The inherent risks associated with trees mean that it is a mistake to manage them in an overly risk-averse manner. In addition to considerations of tree safety, it is important that management decisions are taken in light of their wider benefits (aesthetic, ecological, environmental and sociological). Management decisions to address identified hazards that exceed what is necessary to the detriment of these benefits are inappropriate.
risk and regulation April 15, 2008
Posted by Bradley in : risk , add a commentIn January Gordon Brown announced the establishment of a Risk and Regulation Advisory Council which was going to take over from the Better Regulation Commission. At the time some commentators suggested that setting up another commission in this area was not the answer and that more aggressive action was necessary (to reduce regulatory burdens). The RRAC doesn’t seem to have done a whole lot in the last couple of months - they don’t even seem to have their own web pages but lurk on the BERR website. Of course, now may not be the best time to be dismantling too many rules : the financial markets are uncertain at best right now.
Meanwhile, other government departments are moving forward on their own risk agendas. The Department for Work and Pensions is steaming ahead with proposals to increase the Pensions Regulator’s powers to issue contribution notices requiring payments to be made into a pension scheme:
The Government therefore proposes that Contribution Notices may be issued where the effect of an act is materially detrimental to a scheme’s ability to pay members’ current and future benefits in order to cover situations such as this. This change would mean that the Regulator would no longer need to prove intent on the part of a party to avoid funding the scheme, but rather that the effect of an act or course of conduct posed a materially detrimental risk to members’ benefits.
The Government recognises that a new power such as this must be defined carefully to give clarity to pension schemes and their sponsors, and to ensure that it may be deployed by the Pensions Regulator where necessary without undue burden. It will therefore consult on the best approach to draft such a power. The Government will ensure that new powers are appropriately targeted on actions which pose risks to pension schemes. For example, it may be appropriate to limit the use of the power to situations in which the prospective recipient of a Contribution Notice is unable to demonstrate that the likely consequences of their actions could not reasonably have been foreseen.
The Government also proposes to remove the existing provision that states that a Contribution Notice may not be issued where a party has acted in good faith, but their actions have had the effect of preventing a debt becoming due. Operational experience has shown that this is an unhelpful hurdle which would prevent the power being used in situations where parties have simply not considered impacts on pension schemes.
These approaches have precedent in tax legislation – but we are consulting widely to avoid legislation with unforeseen side-effects.
The detailed consultation paper is yet to be published although the Government proposes to backdate the effect of the rules to April 14th. The language of the reference to the consultation is unusually frank:
This consultation approach will ensure that everyone gets a chance to influence the way these changes are made.
iif on risk management April 10, 2008
Posted by Bradley in : risk , add a commentThere’s some very interesting material on risk in the IIF’s Committee on Market Best Practices’ just published Interim Report. For example:
For complex, structured products, a number of product-design issues require risk management examination, and a robust new product approval and monitoring process including oversight from the most senior levels of the firm. For example, the
“triggers” in structured products – ratings, asset-performance or other tests that suddenly require credit enhancement or liquidation of a vehicle – may, in some cases, have been treated as essentially drafting issues, with insufficient analysis of their
potential cumulative effect on the product, holders of interests, or the firm. It is also important to consider the implications of payment “waterfalls” through tranches, both for own account and for investors, and to analyze a firm’s holdings of all tranches of a given deal on a consolidated basis. As a general matter, the various disciplines involved in developing complex transactions (business, legal, compliance, risk, operations, accounting, tax, etc.) may more often than has sometimes been the case need to step back and look at transactions from an integrated, economic point of view over its development from inception to maturity, rather than from a series of specialists’ viewpoints.
There are some implications here in terms of how we should be developing cross-disciplinary education in business, finance and law.