Some large firms may fail to get PIA authorisation: New regulator will look at past penalties

SOME large financial services companies, such as life insurers and banks, could conceivably be refused authorisation by the Personal Investment Authority, MPs were told yesterday.

Colette Bowe, chief executive of the new regulator, said the PIA will take into account the disciplinary action taken by the existing agencies - such as the record pounds 180,000 fine and pounds 220,000 costs imposed on Legal & General this week.

Appearing before the Treasury and Civil Service Committee at the House of Commons, Ms Bowe said it was 'incontrovertible' that some large and reputable firms have shown themselves to be incompetent.

'More people have been harmed by incompetence than fraud,' Ms Bowe explained. 'The competence of this industry is absolutely key. An incompetent salesman can do just as much damage as a fraudulent one.'

She accepted there was no way that the PIA could establish the fitness and properness of all the hundreds of thousands of staff working for financial services companies by July, when the PIA hopes to assume its powers.

She said that for banks and life offices, the PIA will place prime responsibility with those firms' senior management. For the mostly smaller firms of financial advisers that belong to Fimbra, she said the PIA has run a 'quite successful' pilot study of its vetting process.

Mike O'Brien, the Labour MP for Warwickshire North, was concerned that the PIA was planning to regulate 12 times as many firms as the Bank of England with only 100 more staff. The PIA expects to have 6,000 firms and a staff of 350-400.

Joe Palmer, the PIA's chairman, denied that this was 'a hopeless task'.

Mr Palmer also defended the pounds 12,000 a year that will be paid to the public interest directors who make up 10 of the PIA's 21-strong board. It was necessary to pay enough to attract high-calibre people, he said.

Sun Alliance said it will apply to join the PIA.