SIB gets tough with regulators: Spot checks planned to make sure job of enforcement is being performed effectively

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The Independent Online
THE SECURITIES and Investments Board, the senior financial watchdog, is to strengthen investor protection by taking a much tougher line in policing the junior bodies that do the bulk of the regulatory work.

SIB staff will make inspection visits, sometimes without warning, to the self-regulating organisations and other regulators to ensure they are carrying out their monitoring, enforcement and complaints handling duties effectively.

The board's officers will also visit financial services firms to assess the effectiveness of their regulators' procedures. Although these visits would primarily aim to identify weaknesses among the regulators, any shortcoming found at the firm could lead the SIB to take action.

Andrew Large, chairman of the SIB, said yesterday that, if asked, his organisation would take on the job of enforcing laws against insider trading, market manipulation and City fraud. But he disappointed the Stock Exchange by not seeking immediate legislation to set up a single powerful 'policeman' to replace the proliferation of bodies that share responsibility for market abuses.

Mr Large said he believed greater concentration of resources was inevitable. He added: 'SIB would clearly be a candidate for such a role and should be ready to contemplate taking on additional responsibilities.'

As the Independent reported on Monday, the SIB will withdraw from direct regulation of financial companies. It will seek to persuade the banks, building societies and other companies it regulates directly to seek authorisation elsewhere.

Direct regulation has proved a stumbling block in creating the Personal Investment Authority, a new body intended to take on the regulatory role for private investors.

Mr Large's review of investor protection was commissioned by Norman Lamont, the Chancellor of the Exchequer, in the aftermath of the Maxwell pensions scandal. He said the Government would give full support to Mr Large's proposals, adding: 'The result will be a significant improvement in investor protection.'

But Alastair Darling, Labour's City affairs spokesman, condemned the Chancellor's 'timid' response and failure to recognise the need for a radical overhaul of the system.

Mr Lamont accepted Mr Large's conclusion that 'the extreme step' of moving to a single, fully statutory regulator was not justified at this stage.

Mr Large said: 'People do not want to tear up the system of regulation and start again. What they want is for what we have to work better, and that is what I am working towards.'

Initial reactions from regulators and the Association of British Insurers welcomed the SIB's withdrawal from direct regulation and its commitment to the PIA. However, Sir Gordon Downey, chairman of both the PIA and Fimbra, the financial advisers' regulator, expressed concern that the SIB could get involved in 'second guessing' the SROs.

Mr Large wants the SIB to make a more explicit commitment to investor protection. He wants it to retreat from writing detailed rules and to concentrate on setting clearer standards and measurable performance targets for the junior regulators. He also wants greater openness and accountability.

'There need to be radical changes in SIB's relationship with recognised bodies and in the way the system operates,' the report says.

Mr Large calls for no immediate changes to the legislation, although he would like the SIB to be able to fine and publicly criticise firms other than the small (and shrinking) minority it directly regulates.

The report says the SIB should stand ready to use its 'cumbersome' general powers to revoke the recognition of a junior regulator. However, Mr Large says that if its present powers prove inadequate he will seek amendments of the legislation - as he will if the SIB has difficulty shedding those firms it directly regulates.

The SIB also intends to improve the compensation scheme, which investors find too slow and difficult to use. Its funding will also be changed.

(Photograph omitted)

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