Investment Management Regulatory Organisation (Hansard, 9 July 1992)

§ Mr. Lamont

The Securities and Investment BoardSIB—has today published the summary of conclusions and findings of IMRO's review of its regulation of Maxwell companies—including Bishopsgate Investment Management Ltd.—BIM—and London and Bishopsgate 293W International Investment Management plc—LBI. The SIB is also publishing its assessment of its own and IMRO's performance in this affair and the action both the SIB and IMRO are taking to rectify the shortcomings identified. The SIB's assessment concludes that there were serious deficiencies in the supervision by IMRO of BIM and LBI. I am placing a copy of the SIB's statement in the Library of the House.

The Maxwell affair was wholly exceptional—the vast majority of pension funds have served their members well. Moreover, the IMRO review covers a relatively limited part of the Maxwell story. Under the Financial Services Act, IMRO's role in supervising pension funds was to regulate and authorise pension fund managers. IMRO was not, and is not, responsible for ensuring that pension fund trustees respect their wider obligations under trust law. Moreover, effective regulation must in the final analysis involve the active co-operation of the private sector, including professional advisers, financial institutions and others, all of whom have their own responsibilities.

None the less, in the Government's view the shortcomings identified in the SIB's assessment are of very serious concern. The SIB and IMRO are undertaking a number of actions, detailed in the SIB's assessment, to ensure more effective regulation in future.

IMRO's performance also raises questions about the SIB's monitoring of IMRO and its general oversight of the self-regulatory organisations under the Financial Services Act. I have, therefore, asked Andrew Large, the SIB's new chairman, to conduct his own review of how the SIB carries out its regulatory responsibilities.

I have also discussed with the chairman of the SIB the need to strengthen the implementation in practice of regulatory standards. I am confident that he fully appreciates the urgency and importance of his task and I have asked him to keep me closely in touch with progress on the further work, reviews and improvements that are now in hand.

I have also looked into the recent allegations that IMRO warned the Government that it could not do its job properly because of problems over the relationship between the Financial Services Act regime and trust law. Neither the SIB nor I have found any evidence to substantiate these allegations. IMRO and the SIB made representations to the DTI over a number of years about the legal uncertainty they believed was created by the interaction of the Financial Services Act and trust law. However, there was no suggestion that this uncertainty posed a threat to investor protection. And the SIB's conclusion is that neither legal uncertainties created by the relationship between the Financial Services Act and trust law nor the existence of IMRO's special occupational pensions scheme regime made any material difference to IMRO's regulation of the Maxwell pension fund companies.

No regulator and no system of regulation can guarantee that all fraud will be prevented or identified. But the Government are determined that all the lessons of the Maxwell affair, in its many aspects, must be learned and implemented. I will be assessing in detail over the coming months the effectiveness of the steps already taken by the SIB and IMRO, the additional action now proposed, and the outcome of the SIB's further reviews. I shall then report back to the House.