Sykes report calls for new 'forum' to self-regulate financial services

Financial services companies must set up a system of self-regulation, with a "forum" of the great and the good to punish mis-selling, if it is to restore public trust, according to a wide-ranging critique of the industry.

Financial services companies must set up a system of self-regulation, with a "forum" of the great and the good to punish mis-selling, if it is to restore public trust, according to a wide-ranging critique of the industry.

The recommendation was the centrepiece yesterday of a report by Sir Richard Sykes, the rector of Imperial College London and the former chairman of GlaxoSmithKline, following a two-year investigation into the savings industry and the City.

Its conclusions paint apicture of misleading or impenetrable advertising and argues that self-regulation is the only way for the industry to avoid becoming tied up in the red tape of the Financial Services Authority, the Government's regulator.

Sir Richard said episodes such as pensions mis-selling, the split-capital investment trust debacle and the collapse of Equitable Life had caused a "near-fatal erosion of trust". And he said: "The trouble is, we don't see the scandals suddenly stopping. We think they are an inevitable outcome of the way financial services is working ... Too often it is all about making sales and getting commission, and not about truly seeking to get close to customers and design products to meet their long-term needs." Sir Richard's inquiry was sponsored by Tomorrow's Company, a not-for-profit business organisation, and his inquiry team included representatives from the fund management industry, pension funds and listed companies.

Referring to previous Government-sponsored reviews into specific issues, such as those of Paul Myners and Ron Sandler, Sir Richard said: "We've had the wrist X-rays and the chest X-rays. This is the only total body scan." Sir Richard called again yesterday for a "Hippocratic oath" - similar to that taken by doctors - to be sworn by savings industry professionals, pledging to act in the best interests of customers.

This, plus a system of "seals of approval" for savings companies or products, would be policed by a new "forum", he said. The membership of the forum would include investor and company representation, with the aim of enforcing best practice and identifying problems before they become damaging "scandals", the report suggests.

But there were only sketchy details of how such a forum might be set up, and progress on its creation will have to wait for the inquiry team's meeting next month. The initiative could come from existing bodies, such as the National Association of Pension Funds and the Investment Managers Association, according to Colin Melvin, director of corporate governance at Hermes, the activist fund management group, whose chief executive, Tony Watson, is a member of the team. "By signing up to the report, the inquiry team have made an undertaking to act," he said.

Other recommendations among the 52 in the report are aimed at encouraging institutional shareholders to engage with the companies they own. It suggests fund managers should be ranked on their ability to be "responsible owners". It also seeks regular "strategy conferences" where companies can publicly debate long-term issues with their shareholders. Sir Richard said: "Separate initiatives are not enough. There needs to be a collective focus."

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