Expert knocks Labour ideas

The Labour party's plan to scrap second tier City regulators will create confusion in the City, according to leading financial regulation lawyer and SJ Berwin partner Charles Abrams.

Labour has long planned to simplify City regulation by creating a single regulatory authority similar to the US Securities and Exchange Commission.

Last week, shadow treasury minister Mike O'Brien said it was unlikely that junior regulatory bodies would be allowed to keep their own identities as separate departments within the single body.

He said Labour saw no benefit in distinguishing the statutory Securities and Investment Board (SIB) and the second tier self-regulating organisations (SROs) like the Personal Investment Authority, the Securities and Futures Authority (SFA) and Imro.

O'Brien said: “It is an extra layer of bureaucracy. The SROs would be folded into the SIB.”

But Abrams, who advises clients on how to minimise financial regulation and liaises with Imro and the SFA, said: “Labour have got the wrong perspective on this. It has got this image of the SEC and state control.

“There are one or two cases like Maxwell, the Copper scandal and the collapse of Barings and people say it's the fault of self-regulation. It's got nothing to do with self-regulation at all.”

He said a conflict of interest would arise if the SROs formed part of the SIB. Abrams added: “The SIB aims to protect the interest of investors. But who is the investor? The SFA regards the investors as the fund managers. Imro treats the investors as the individuals who have invested in the funds.

“There will be conflict within the SIB as to how much you protect investors and who you should be protecting.”

He also attacked the principle, saying that self-regulation had begun to work. He said: “You would lose that flexibility. The SFA is very good at saying: 'How can we minimise regulation without prejudicing investors?'

“The individual SROs know their markets. Whenever I talk to the SIB, they are much more pedantic, slow and inflexible.”

Abrams said there was a strong argument for giving the SIB the power to fine companies that breached regulations, but argued that the SEC itself was having problems and would have found life easier if it had second tier self-regulating bodies.

The SIB last week signed a memorandum of understanding with the Chilean securities regulator, the Superintendencia de Valores y Seguros, to cooperate in the exchange of information.