THE PIA: STOP‐GAP OR LASTING SOLUTION?
| Published date | 01 April 1994 |
| Pages | 286-313 |
| DOI | https://doi.org/10.1108/eb024817 |
| Date | 01 April 1994 |
| Author | MAXIMILIAN J.B. HALL |
| Subject Matter | Accounting & finance |
THE PIA:
STOP-GAP
OR
LASTING SOLUTION?
Received: 13th July, 1994
DR
MAXIMILIAN
J. B. HALL
DR
MAXIMILIAN J. B. HALL
GRADUATED WITH A FIRST CLASS HONOURS
DEGREE IN ECONOMICS FROM NOTTINGHAM
UNIVERSITY IN 1975. HE RECEIVED A PHD
FROM THE SAME UNIVERSITY IN 1978. HE
JOINED THE STAFF OF THE ECONOMICS
DEPARTMENT AT LOUGHBOROUGH
UNIVERSITY IN 1977 AND IS CURRENTLY A
SENIOR LECTURER IN THAT DEPARTMENT.
DR HALL HAS PUBLISHED SEVEN BOOKS (ONE
CO-AUTHORED) IN THE AREAS OF MONEY,
BANKING AND FINANCE, WITH A FURTHER
ONE DUE FOR PUBLICATION LATER THIS YEAR.
HE HAS ALSO CONTRIBUTED SOME 45
ARTICLES TO ACADEMIC AND PROFESSIONAL
JOURNALS. HIS CURRENT RESEARCH
ACTIVITIES EMBRACE UK BANKING
SUPERVISION, CENTRAL AND COMMERCIAL
BANKING DEVELOPMENTS IN THE UK, USA,
JAPAN AND THE EC, FINANCIAL REFORM IN
JAPAN AND FINANCIAL REGULATORY ISSUES IN-
GENERAL. DR HALL IS A MEMBER OF THE
EDITORIAL BOARD OF JOURNAL OF FINANCIAL
REGULATION AND COMPLIANCE.
ABSTRACT
In June 1994, and despite serions mis-
givings front the finance industry and
investors alike, the Personal Investment
Authority (PIA) was
'recognised'
as the
new retail self-regulatory organisation
(SRO)for
the
investment business industry
in the UK. This paper
traces
the
back-
ground to this event and the
development
of
the
PIA from inauguration to
recogni-
tion.
It also examines the concerns
expressed
by its
critics
and the findings of
the all-party
Treasury
and Civil Service
Committee, which produced an interim
report
on the
subject.
It
concludes
by con-
sidering some alternative reform proposals
and asking what
the
future
holds
for the
PIA.
INTRODUCTION
Ever since the introduction of the
Financial Services Act (FSA) of 1986
there has been persistent criticism of
the structure and operation of regu-
lation in the UK investment business
industry.1 In the light of the pub-
licity given to the scale and inci-
dence of 'abuse' this is hardly
surprising, but the Government has
been slow to react for fear of re-
opening the debate about the rela-
tive merits of statutory or
non-statutory (practitioner-based)
regulation and the optimal balance
286
JOURNAL OF FINANCIAL REGULATION AND COMPLIANCE · VOLUME TWO NUMBER FOUR
-HALL-
to be struck between the two. A
string of highly-publicised Financial
scandals, culminating in the Maxwell
pension fraud, finally stung the
Government into action, however.2
A review of the regulatory system
was duly commissioned by HM
Treasury from the Securities and
Investments Board (SIB) which in its
report, among other things, cham-
pioned the cause of a new retail
regulator to eliminate the inefficien-
cies identified within the current set
up.
Prior to such developments, a
review of retail regulatory arrange-
ments had been commissioned by
the SIB itself from Sir Kenneth
Clucas, who also focused on the
need for a new retail regulator. His
primary concerns were different,
however, as he was looking for a
solution to the financial problems
faced by the retail watchdog Finan-
cial Intermediaries, Managers and
Brokers Regulatory Association
(FIMBRA) and the threats posed to
the continued operation of the
industry-wide Investors Compensa-
tion Scheme.
The answer to both sets of prob-
lems was perceived to be the crea-
tion of a new retail regulator, which
became known as the Personal
Investment Authority (PIA). The
origins and development of this
body are explored further below, as
is the controversy which has sur-
rounded it from the start.
ORIGINS OF THE PIA
The Clucas Report
The idea of establishing a new SRO
for the retail end of the investment
business industry3 was first canvassed
by Sir Kenneth Clucas in his report
(the Clucas Report) of March 1992.
His report,4,5 which represented the
outcome of a review of retail regula-
tory arrangements (focusing on the
case for a new retail regulator) com-
missioned by the Securities and
Investments Board (SIB) in October
1991,
recommended that a new SRO,
later named the PIA, be formed
from the merger of the FIMBRA and
the Life Assurance and Unit Trust
Regulatory Organisation (LAUTRO).
Some members, namely large inde-
pendent financial advisers and those
involved in the mass-marketing of
packaged investment products such
as unit trusts, of the Investment
Management Regulatory Organisa-
tion (IMRO) should also be asked to
switch to the new regulatory body, it
was suggested.
In coming to this conclusion, two
factors which weighed particularly
heavily on Sir Clucas's mind were
the need to stabilise the financial
position of FIMBRA, which was
suf-
fering at the time from declining
membership and a spiralling of costs
associated with the defaults of some
(eg Dunsdale Securities, the Levitt
Group) of its member firms, and to
underpin the industry-wide Investors
Compensation Scheme (ICS) in the
face of a threat by the life insurance
company membership of LAUTRO
to withdraw the safety net6 they had
previously voluntarily provided
(because FIMBRA members sell their
products) and the likely loss of re-
insurance cover from the insurance
industry.7 The merger of FIMBRA
with LAUTRO was deemed the best
way of dealing with the compensa-
tion problem while preserving the
independent sector and hence the
availability of independent financial
advice.8
287
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