New investment watchdog under fire from all sides

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ON FRIDAY, the embryonic Personal Investment Authority finally delivered its draft prospectus to its indulgent but increasingly impatient parent, the Securities and Investments Board, amid a continuing chorus of discontent.

The prospectus marks the latest milestone in a two-year saga that just might lead to the PIA opening for business this summer - or, maybe, by the autumn. The document is due to be published on 17 February, after the SIB directors have formally approved it.

As its name implies, the PIA is intended to oversee the activities of businesses that offer financial services to the public. It is vital that it be an effective consumers' champion, following the scandals in the past decade from Barlow Clowes to Roger Levitt and the infamous Maxwell plundering of pensions. But such considerations seem to have been lost in parochial skirmishes between various industry groups.

The PIA is to succeed the Life Assurance and Unit Trust Regulatory Organisation (Lautro) and the Financial Intermediaries, Managers and Brokers Regulatory Association (Fimbra).

While it seemed a good idea to merge these bodies as many of their activities overlapped, the process has been marked by public bickering and private backstabbing.

Indeed, unless there is some nifty footwork by Joe Palmer, the PIA chairman, and his chief executive, the accident-prone Colette Bowe, the curtain will rise on a show that will lack two principal players: Prudential Corporation and Standard Life.

Only this month, Jim Stretton, Standard Life's deputy managing director, resigned from the PIA board because he believed that too many industry outsiders were being allowed to sully its deliberations.

Mick Newmarch, the Pru's outspoken chief executive, has argued strongly for full-blown statutory control of financial services.

He declared: 'When the Government set up the SIB, it made it clear that the delegation of statutory authority to a non-governmental body was unprecedented, and therefore something of a leap in the dark. It has now to face up to the fact that this approach has not worked and to revert to the conventional, proven statutory basis for regulation.'

However, there is no sign that the Government is willing to devote precious parliamentary time to fresh legislation.

Meanwhile, the public and small independent financial advisers have been forced to hop anxiously from foot to foot as the banks and big insurance companies have slowly circled one another, like Sumo wrestlers.

Jean Eaglesham, head of the Consumers Association's money unit, said: 'We have been dismayed by the way in which the evolution of the PIA has been sidetracked by industry interests. People like ourselves have had virtually no input into the debate, and industry interests are often opposed to consumers.'

One such conflict that has damned the industry's reputation in the eyes of many private savers has been insurers' fierce reluctance to disclose the commissions they pay sellers of their policies.

Although Mr Stretton quit because Mr Palmer wants 10 of the PIA's scheduled 19 directors to be 'public interest' directors who do not work in the industry, Ms Eaglesham pointed out that those named so far are hardly representative of the small saver.

'We want the next two to be people from consumers' interests,' she argued, 'as opposed to civil servants.'

The big firms, which mainly belong to Lautro, fear that unless they arrange the PIA's rules in the right way, they will be made to pay millions in compensation for the shortcomings of Fimbra-based independent financial advisers.

One reason for PIA's creation is that Fimbra's coffers were being drained by the steady stream of claims from anguished policyholders that they had been given bad or even corrupt advice. This could result in tough controls over the activities of independent financial advisers - an argument the latter are in danger of losing by default.