Standard Life also joined Prudential Corporation, the largest life insurer, in calling for a new system of statutory regulation for the financial services industry. Other life insurers are also becoming increasingly concerned about the PIA, particularly the planned composition of its board and the lack of accountability that will allegedly follow.
PIA directors readily conceded that the opposition of Standard Life and the Pru posed a serious threat to the new body's credibility. One said: 'We could live with Mick Newmarch (chief executive of Prudential) while he gained no other support. Whether or not we can gain credibility for the PIA with people like Standard Life not willing to join is another matter.'
He said the PIA in 1992 was imperilled by the opposition of the banks and the building societies. 'How much truer must (the threat) be if the two largest insurers, who between them control over 20 per cent of the market, won't join?'
Denis Brown, an independent financial adviser and PIA director, said: 'I fear for the future of the PIA. How many other offices, particularly the Scottish offices, are going to join Standard Life and Prudential?'
Publicly, the Securities and Investments Board, the senior investment regulator, said it was confident that Standard Life's move would have no long-term significance on work on the PIA.
The Treasury said the composition of the PIA board was a matter for its membership. The Government saw 'no need to disturb the established structure of self-regulation under the Financial Services Act, with strong practitioner input'.
Standard Life's change of heart was prompted by a decision to reserve only nine of the 19 seats on the PIA for representatives of the financial services industry. In common with other insurers, Standard Life does not believe this structure can be described as self-regulation and is incompatible with the FSA.
Jim Stretton, Standard Life's deputy managing director, resigned in protest from the PIA board. Mr Stretton said the proposed constitution 'will . . . bring into being an unnecessary tier of regulation accountable directly neither to Parliament nor the industry. Diluted responsibility for regulation is clearly opposed to the interests of consumers'.
Scott Bell, Standard Life's managing director, said: 'Unless we can have a true self-regulatory structure - which I believe can and would work well in practice - we must have a statutory regulator.'
The SIB said it was surprised by the timing of Mr Stretton's resignation, since Andrew Large, its chairman, made clear his views about board structure a year ago.
Labour seized on Mr Stretton's resignation as further evidence of the failure of self-regulation. Alistair Darling, Labour's City spokesperson, said this was yet another hammer blow to the Government: 'The fact that Mr Stretton, who believes in self-regulation, is now driven to the conclusion that what is needed is statutory regulation, shows that the present system cannot continue.'
BAT Industries, the owner of Allied Dunbar and Eagle Star, would also favour government regulation. Scottish Amicable, another large life office, also said last week it would prefer statutory control to regulation by unaccountable 'public interest directors'.
Even insurers prepared to go along with the plans, such as Sun Alliance, are unhappy about the weakened industry representation.
Mike Doerr, managing director of Friends Provident, a large mutual life office, said: 'If self-regulation means anything it means self- regulation. If it means regulation by some third party then that third party should be the Government.'
The PIA's public interest directors include its chairman, Joe Palmer, a former chief executive of Legal & General and chairman of the Association of British Insurers. The board was enlarged to include Colette Bowe, the former SIB official who is PIA's chief executive.
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