Percy accepts reprimand on Young affair

KEITH PERCY, the former head of Morgan Grenfell Asset Management, warned yesterday that chief executives of City firms will have to appoint outside lawyers to second guess their compliance departments after accepting an official reprimand for his failure to prevent serious irregularities in the management of two of the firm's retail funds.

The two funds - the Morgan Grenfell European Growth and Capital Growth unit trusts - had to be bailed out to the tune of pounds 400m by MGAM's parent, Deutsche Bank, in 1996.

Peter Young, who managed the funds, faces criminal charges, while five other senior MGAM managers have been suspended for periods of 16 months to three years.

As part of his settlement with Imro, the fund management watchdog, Mr Percy will pay pounds 84,200 to cover investigation costs and will contribute to the disciplinary costs. In return, Imro has agreed to restore his registration with immediate effect. He will join the board of Societe Generale Asset Management alongside Nicola Horlick, his former MGAM colleague.

Mr Percy said yesterday he had agreed to settle in order to avoid delays and added costs associated with a full tribunal hearing. Although his case had been due to be heard next week, Mr Percy had been told that a final ruling was unlikely before March. "I have agreed to settle so I can return immediately to the fund management industry.

"If I had been offered a reprimand two years ago I would have been annoyed, but I probably would have accepted it. I was the chief executive with overall responsibility."

Mr Percy said that with hindsight he accepted he should have questioned the findings of the internal investigation more strongly and established a parallel investigation.

He added: "The implication of this judgment is that 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."

Mr Percy, who was first alerted to problems in the two funds in April 1996, said that at the time he believed he was entitled to rely on the work of Morgan Grenfell's compliance department, at the time seen as a model for other City firms.

A spokeswoman for Imro said:"We have recognised that [Mr Percy] was one step removed and had not been an active fund manager for two years, and that was why he got a reprimand and not a suspension, but he should recognise that with those warning bells it was like being run over by a fire engine."