Authorised signatory lists

From The Jolly Contrarian
Jump to navigation Jump to search
Negotiation Anatomy™


Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you.
Sign up for our newsletter.

In a quixotic attempt at risk control by legal contract, brokers, custodians and other service providers in the financial markets are often sent “authorised signatory lists” by their clients itemising those of personnel who are permitted by the client to submit instructions, orders, and so on.

Usually these are couched with a warning:

“We shall not be liable for any instructions unless given by authorised signatories as set out in schedule A, as amended from time to time.”

Now this might seem a sensible measure, from the client’s perspective, but brokers generally hate it, and with good reason. For what it really amounts to is the client’s admission that it doesn’t trust, or can’t control, its own employees. Rather than doing this itself, it is asking its counterparties to do this for it, at their own cost, expense and liability.

Stuff that for a game of soldiers. And that held true even in the good old days, when actual humans, and not chatbots and self-aware algorithms, sent in the orders.

As such, brokers routinely refuse to be bound by these lists. If you’re confronted with one, here's a ready made explanation of why it won’t do:

While we understand each client’s wish to ensure its personnel comply with its own internal policies, mandates and regulations, ultimately it is that client’s primary responsibility, and not ours, to make sure they do.

Given the nature and large volume of business we handle for so many different clients, it is not practicable to verify on a trade-by-trade basis whether a given client employee has specific internal authorisation to transact with us on that client’s behalf.
While we have systems and controls to ensure that client instructions are properly authorised and provided by persons generally empowered to issue them, we cannot police client authorisation policies on a client’s behalf or take responsibility for client employees’ compliance with them, and we therefore cannot accept any purported restriction on a client’s liability to perform transactions instructed by your personnel purely because they happen to be in breach of your internal mandates or authorisations.
As between us, therefore, the presumption must be that losses (or gains) that arising from any such unauthorised orders originating within your organisation will be for your account.

Everything about authorised signatory lists is wrong, poor, and unbecoming of a professional financial services organisation. That these are even proposed, let alone accepted, is indicative of what is so messed up about risk management and legal practice in the financial services industry.

The answer is not to wash your hands of your own problems by burying something in a notice — which, odds on you won’t update, giving you a free option to walk away from any trade a subsequently-authorised trader places, since you know your broker will accept it — but to properly monitor your own employees.

What with modern technology, it is not exactly hard to do.

See also