View from City Road: Regulatory sham ripe for reform

IT IS NOT just the future of Imro or the Securities and Investments Board which is at stake but self-regulation itself. The Chancellor yesterday revealed that, belatedly, he has started to appreciate the seriousness of the situation, post-Maxwell.

Imro, one of four self-regulatory organisations, has been made a scapegoat for the problems of the system as a whole. It is right that this should not continue.

There is no doubting Imro's failings. By its own admission it fell down on the job. In particular it should have been more inquiring over Maxwell's stock lending.

But other SROs also had a role to play. The Securities and Futures Authority, which regulates some of those who did business with Maxwell, is reviewing its performance. The Chancellor has asked the SIB to do the same. Hopefully its self-assessment will be as full and frank as Imro's. Otherwise an outsider should be brought in to carry out the review.

If adverse findings can be confined to Imro, the 'self-regulatory' system might survive. If not, it should be re-designed with all the disruption that entails. It has manifestly failed to prevent fraud, while at the same time costing a small fortune to run.

'Self-regulation' is, in any case, a sham. The SIB is a statutory body. It employs former civil servants. For the most part the SROs employ professionals who make their careers in regulation, rather than as fund managers. A truly self-regulatory system would rely more on secondment of professionals from the market place.

Far too many bodies are involved and the lines of communication are unclear. Where does the Stock Exchange fit in? Although not an SRO under the Financial Services Act, it is a competent authority as far as the EC is concerned. It will also be a regulator in respect of Taurus.

The Chancellor's statement is a welcome start. But asking for better implementation of regulatory standards by the SIB may not be enough. He should be prepared to impose more fundamental change. Having only recently inherited responsibility for FSA regulation from the Department of Trade and Industry, the Treasury has the new boy's privilege of being able to re-design the system. It does not, however, have to abandon it entirely. If the SIB is given a clean bill of health, it could become the single FSA regulator. The SROs could become divisions of the SIB and we could all drop the pretence of self-regulation.

(Photograph omitted)