View from City Road: The SROs' days are numbered

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The Independent Online
ANDREW LARGE was unprepared. With a background in eurobonds, he has found himself having to deal with problems of which he has little experience. He hoped he would have time to read himself into the job of chairman of the Securities and Investments Board. Suddenly the Maxwell fraud blew up and he had to get down to work.

At the same time as dealing with the fall- out from Maxwell, he has found that there are serious difficulties with the formation of the Personal Investment Authority, a new body intended to regulate investments sold to the public. It means that Mr Large and the system of City regulation are under heavy fire from two directions.

In view of his own inexperience of many of the activities regulated by the SIB it is perhaps not surprising that he should value the experience of others so highly. He wants to find a way of engaging more people who have experience of selling life insurance, managing portfolios or dealing in shares in the self-regulatory organisations.

He has hit on the fundamental flaw of the system. Practitioners are represented on the boards of SROs. But there are not enough of them carrying out inspections, examining paperwork and making inquiries.

It is hard to see how more practitioners can be encouraged to work for the present set-up. The SROs do not have the US Securities and Exchange Commission's knack of hiring high-flying lawyers, because they do not have the same status nor do they offer the same career prospects or salaries.

Few successful employees of an investment bank, life insurance company or mortgage broker want to work for an SRO, though they might on secondment, if their employers are willing to foot the bill.

Without more practitioners self-regulation means nothing. It has failed to live up to its name. If it is to be preserved the industry will have to show that it is prepared to meet the cost of staffing the regulatory bodies properly.

Even that will not be enough. Regulators would find it easier to hire high-flyers with experience if they joined forces. Working for an enlarged SIB would be much more attractive than working for junior bodies such as the Securities and Futures Authority or Fimbra. Mr Large may not like it, but the days of the SROs are numbered.

With the future of self-regulation in doubt - both inside and outside the City - Mr Large will have to show greater preparedness to change the structure of regulation in the City.

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