REGULATION that has forced the City to pay almost £500m to compensate clients of failed investment firms in the past three years needs urgent reform, an industry leader said yesterday.
Douglas Ferrans, chairman of the Investment Management Association, called for an independent review into the Financial Services Compensation Scheme, which charges investment managers for the compensation bill when their peers collapse.
The FSCS caused an outcry among fund managers last year when it billed the industry £230m for compensation after the collapse of investment product provider Keydata Investment Services.
Wealth managers such as Charles Stanley, Rathbones and Brewin Dolphin have been outspoken in their criticism of the scheme, which bit into their profits after being imposed without warning.
Ferrans said the Financial Services Authority, which manages the FSCS, needed to do a better job of regulating the companies to avoid their failing at such cost.
“The scale of recent failures… can not be ignored,” he said. “All the firms in question were regulated by the FSA. And warning lights had been flashing over them for some time.”
The unpredictability of the levy makes the UK a less attractive place for international funds to invest, he added. “There is a need for these events to be the subject of an independent review and for lessons to be learned.”