IMA calls on G20 to develop more effective financial regulation

In its submission to the government ahead of next month's G20 summit the Investment Management Association (IMA) calls for the development of a more effective regulatory regime for the future.

While the immediate issue for governments must be the resolution of the current crisis, more effective regulation will be central to preventing similar crises in the banking system in the future. Regulation of the investment management industry has been to the benefit of both the industry and its clients, and has helped it to weather the crisis. IMA is calling for equally robust regulatory structures and regimes for the financial sector as a whole. In particular, future regulation will need to recognise explicitly that some parts of the banking system are essential to the functioning of a market economy, and address the challenge of reconciling this with the need for unsuccessful businesses to be allowed to fail.

IMA also warns that there is still an urgent need to restore confidence in the banking system if the current financial crisis is to be resolved. Conditions need to be created in which banks can once again attract private capital. This must, one way or another, inevitably involve separating the "good" assets from the "bad" within bank balance sheets.

IMA acknowledges that the crisis cannot simply be regarded as a failure of regulation, and that there has also been a failure of other parts of the regime, including governance. The roles of non-executive directors, auditors and investors all need to be reviewed and lessons learnt for the future.

Richard Saunders, Chief Executive of IMA, said: "While the immediate focus will be on a coherent approach to the present crisis, it is not too early to consider a new regulatory framework. Regulation has served the investment management industry well over the years, and we would encourage the G20 to focus on initiatives that will improve investor protection and financial stability in the longer term across the entire financial services sector.

Good governance will be an important part of this. Non-executive directors, auditors and investors will have their part to play. IMA welcomes this and will encourage its members to embrace reform."