Keith Percy, the former chief executive of Morgan Grenfell Asset Management (MGAM), recently issued a statement in which he accepted a reprimand from industry regulator IMRO. MGAM was hit by the so-called Peter Young affair, in which a fund manager improperly invested funds in unlisted securities. Resultant losses cost MGAM £434m to put right. Percy’s statement also set out “some of the principal lessons” that he said he learned from the investigatory and disciplinary process. In full, these read: “When it comes to compliance matters, a CEO may not be fully entitled to rely on his management team, however experienced and competent they are believed to be at the time. “A CEO may not rely solely on advice from his in-house compliance department in determining what should or should not be reported to IMRO. Only by calling in external legal advisers will a CEO be protected from the risk of censure by the regulator, even though they may be in no better position to identify fraudulent behaviour. “Where there is the possibility of serious wrongdoing, even to the extent of the use of third parties, as is alleged in this case, it seems the only means of detecting matters at an early stage is to start from a presumption of wrongdoing. Not even those sitting feet away from Mr Young at MGAM had any idea of his alleged activities, until they were uncovered.” Richard Gossage, president of the Institute of Internal Auditors, said: “The comments made by Keith Percy need to be considered in a broader context.” He said that the challenge facing any CEO is “to create the right balance between trust and control. When designing and implementing control systems, consideration needs to be given to the risk of fraud and minimising the opportunity for it. However, to move forward on the assumption that everyone is engaging in fraudulent activity is likely to create an environment of distrust.” See corporate governance feature, page 31.