Treasury dashes hopes of statutory status for PIA

Click to follow
THE TREASURY yesterday said it had no intention of making the Personal Investment Authority a statutory body reporting directly to the Government.

The statement, the first unequivocal indication of the Treasury's views, dashed the hopes of many potential members of the PIA who have delayed joining in the hope of forcing concessions in the way it is run.

The Treasury made the move as a direct result of an article in yesterday's Independent, in which Sir Gordon Downey, the PIA's first chairman, said the new personal investment regulator should be made a designated agency to satisfy critics in the financial services industry.

Under present plans, the PIA has a board composed of industry and public interest figures, and takes its legal powers second-hand from the Securities and Investments Board, the senior financial regulator.

A number of leading firms, led by Prudential, believe the PIA is an unsatisfactory hybrid of statutory and self-regulation and have been pressing for it to be made an unambiguously statutory body. Sir Gordon said designated agency status, reporting to the Treasury, would help to overcome these objections.

But a Treasury spokesman gave four reasons why it saw 'no value in pursuing the possibility that the PIA might be a designated agency.'

These were that a change would delay introduction of higher standards of investor protection, it would create a risk of inconsistent standards in different areas of investment business, it would reduce practitioner input, with a risk that regulation might become less effective, and it would confuse the role of the SIB, which oversees all the junior regulators.

The statement is thought to have been made after pressure from Andrew Large, the SIB chairman, for the Treasury to tell the industry that there is no point in waiting for a government change of heart.

Some PIA opponents have said they believe the Treasury is considering substantial concessions.

Meanwhile, it has emerged that the PIA is proposing to beef up its monitoring and enforcement staff to enable it to make increased checks on its prospective members.

The additional staff are expected to add a further pounds 1m- pounds 2m to the PIA's yearly running costs of about pounds 30m. According to one source, the PIA's staff numbers will rise from the 350-400 forecast in its prospectus in February to closer to 450.

The committee of MPs investigating financial services regulation has queried whether the PIA has adequate resources.

Small firms of independent financial advisers, who are supposed to join the PIA from Fimbra, their existing regulator, are concerned that they will have to bear the additional cost.

The PIA is proposing that when its monitoring staff visit financial advisers, they should inspect 20 customer files, double the number previously agreed.

Critics say this will increase costs without a proportionate improvement in investor protection. They are concerned that the approach is too prescriptive, and does not allow a judgement to be taken on the risk posed by the firm's size and nature.

The PIA said it had still to take a decision on increased staffing.

View from City Road, page 21