Imro to shake up high-risk firms

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The Independent Online
Imro, the City watchdog, yesterday announced a radical plan to lighten the supervision of responsible firms to focus on those judged a high risk to investors. Imro, which mainly regulates the fund management industry, also called for a national campaign to educate people about investment after research revealed a "lamentable level of ignorance in the majority of investors".

Phillip Thorpe, chief executive said: "We are now looking at a population that must make decisions about retirement, health, housing and education where in the past we may have been able to rely on the state for assistance. But we cannot expect people to take responsibility for difficult financial decisions without sufficient understanding."

Mr Thorpe said Imro's proposals were based on rewarding firms that put investors first by easing the burden of external regulation. Those that had proved themselves worthy of trust would be expected to take on increased internal compliance commitments.

Imro will introduce the new regulatory proposals through a pilot project that will run into next year, involving 50 firms selected from a broad cross-section of its 1,100 member firms.

"While, inevitably, there will be firms and individuals that will continue to respond only to discipline, the majority of firms have a capacity to respond to more positive forms of encouragement," Mr Thorpe said.

Conceding that there was a high risk to Imro should the experiment back- fire, Mr Thorpe said the watchdog would be most careful about the firms it selected.

If the pilot proves successful, the idea is to move quickly to a tailored form of regulation for the substantial majority of Imro members.

"After all, it is only about 10 per cent of our firms that seem to be chronically unable to meet the good investment criteria, and it is on them we wish to concentrate our efforts," he said.

The criteria for inclusion in Imro's new project include a good regulatory history, strong internal compliance, sound finances, and above all an assessment that the firm poses a low risk to investors. Imro's risk assessment will remain confidential.

"We are very resistant to the idea of handing out risk ratings, that is not our business,' said Mr Thorpe.

Those firms allowed lighter regulation will receive more frequent, but shorter visits from Imro, and will be allowed a greater opportunity for self-correction.

Alongside the proposed changes in the way it conducts regulation, Imro said there was an urgent, national need for promoting investor awareness. Research last year showed investors continue to have a poor understanding of investments generally.

Mr Thorpe said Imro hoped to combine with other regulators, consumer bodies and educational authorities to start initiatives. Noting that in the US, trade bodies sponsor competitions in schools, Mr Thorpe said increasing financial awareness needed to begin at a much earlier stage.

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