View from City Road: Self-regulation may be PIA in the sky

Roy Nicolson, managing director of Scottish Amicable, yesterday said he would be 'most reluctant' to join the Personal Investment Authority if the proposed regulator's board had a majority of 'public interest' directors. 'That's not self-regulation,' he said. 'If that's the way (it's) going, we would say the only thing to do would be to have statutory regulation.'

Mr Nicolson's view is shared by other life companies, which are reluctant to see power pass to consumerists and other unaccountable do-gooders. A decision, postponed once already, is due at a PIA board meeting in 10 days.

The position of the Securities and Investments Board, the senior financial regulator, seems clear: Andrew Large, SIB's chairman, said a year ago that a majority of public interest directors was of great importance if the PIA was to command full public confidence.

However, Mr Large also wanted the PIA's chairman to be a stalwart of the public interest. He found his man in the surprising figure of Joe Palmer, former chief executive of Legal & General and chairman of the Association of British Insurers. It is the insurers' inability to obey the rules and control their salesmen - most shockingly obvious in the personal pension transfer scandal - that is most to blame for the perceived failure of the existing system of investor protection.

The PIA seems to be planning another fudge, increasing public interest representation but somehow assuaging the life insurers' fears of loss of control. It is hard to see how any such solution could meet Mr Large's original demands. Perhaps Mr Palmer will be counted twice, once for the financial services industry and once for the public interest.

The life insurers' alternatives to the PIA look extremely limited. Any attempt to seek direct regulation from the SIB would defeat Mr Large's objectives, perhaps finally forcing him to seek fresh legislation. Statutory regulation may not be quite as distant as it looks.