View from City Road: Defeatism and regulation

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Robert Maxwell seems if anything to grow in stature as the second anniversary of his death approaches. Regulators suppose that rewriting their rulebooks to stop a similar scam would be impossibly expensive for the firms they supervise. This defeatism was typified by the Securities and Investments Board's discussion paper on 'custody' issued yesterday.

Custody is the global service industry composed of institutions that make money by looking after securities for other institutions, usually fund managers.

The SIB had to review this area because Maxwell mainly stole the pension fund money by 'lending' securities owned by his public companies' pension funds to his private companies. The question of which institutions should have had custody over which securities is thus central to the Maxwell saga.

Yesterday's discussion paper from the SIB called for 'a lively and stimulating debate on this important subject'. This is asking a lot, since the SIB's 100-page discussion paper is as soporific as cocoa.

It is also, ultimately, unsatisfying, as it argues that guaranteeing against another Maxwell-style fraud would impose excessive costs on the industry.

We have been here before. When tackled about new rules to 'stop another Maxwell', the banks have pleaded that they might damage London as a financial centre, the accountants have claimed that audits would have to be 10 times more expensive, and so on.

If this really is the case, then better surely to sack the regulators and build one giant compensation fund for pensioners. When the next Maxwell-type fraud takes place, at least innocent pensioners will be protected.

The Robert Maxwell Memorial Compensation Scheme should be limited to a maximum payout of, say, pounds 200,000. This would protect most pensioners while leaving the better off - such as bankers, auditors and the like - exposed. Then, at last, we might see some real self-regulation.