Gower Report
Encyclopedia
The Gower Report into investor protection proposed regulations for the financial services
industry in the United Kingdom
in the late 1980s. It led to the establishment of the Securities and Investments Board, the forerunner to the Financial Services Authority
.
industry was largely self-regulated in its nature. The main regulatory legislation was the Prevention of Fraud (Investments) Act 1958 which was introduced in an attempt to provide a degree of consumer protection
, but in itself did not go far enough as the scope was narrow and was frequently open to interpretation.
A number of factors, both positive and negative, forced the government to reconsider the way financial services were regulated in the UK. These included a number of highly publicised scandal
s to hit the UK financial services sector in the '70s and '80s involving mis-selling of personal pension scheme
s, endowment
s and split capital investment trust
s.
In response to these factors the Government appointed the Wilson Committee in 1980 to review the financial system. The Government, unsatisfied with their findings, recruited Professor L. Gower in 1981 to consider new legislation
. His mandate was as follows:-
Gower produced his report and the Government adopted a number of his proposals in a white paper
(Jan 1985). The Financial Services Act 1986
(FSAct) followed the white paper, receiving royal assent in November 1986. Its scope centered on Investment business and activities carried out in relation to those investments.
In line with the propsals given by Gower, The FSAct named the Securities and Investments Board (SIB) as the designated agency for the supervision of investment business within the UK (the forerunner to the Financial Services Authority
FSA). The SIB created five Self-Regulatory Organisations
(SROs), later condensed to three:
These were all later subsumed into the FSA.
In addition the SIB also recognised other bodies that conducted day-to-day regulation of investment business:-
Financial services
Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...
industry in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
in the late 1980s. It led to the establishment of the Securities and Investments Board, the forerunner to the Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
.
Background
Throughout the greater part of the 20th century the UK financial servicesFinancial services
Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...
industry was largely self-regulated in its nature. The main regulatory legislation was the Prevention of Fraud (Investments) Act 1958 which was introduced in an attempt to provide a degree of consumer protection
Consumer protection
Consumer protection laws designed to ensure fair trade competition and the free flow of truthful information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors and may provide additional...
, but in itself did not go far enough as the scope was narrow and was frequently open to interpretation.
A number of factors, both positive and negative, forced the government to reconsider the way financial services were regulated in the UK. These included a number of highly publicised scandal
Scandal
A scandal is a widely publicized allegation or set of allegations that damages the reputation of an institution, individual or creed...
s to hit the UK financial services sector in the '70s and '80s involving mis-selling of personal pension scheme
Personal pension scheme
A Personal Pension Scheme , sometimes called a Personal Pension Plan , is a UK tax-privileged individual investment vehicle, with the primary purpose of building a capital sum to provide retirement benefits, although it may also be used to provide death benefits.These plans first became available...
s, endowment
Financial endowment
A financial endowment is a transfer of money or property donated to an institution. The total value of an institution's investments is often referred to as the institution's endowment and is typically organized as a public charity, private foundation, or trust....
s and split capital investment trust
Split capital investment trust
A split capital investment trust is a type of investment trust which issues different classes of share to give the investor a choice of shares to match their needs. Most splits have a limited life determined at launch known as the wind-up date...
s.
In response to these factors the Government appointed the Wilson Committee in 1980 to review the financial system. The Government, unsatisfied with their findings, recruited Professor L. Gower in 1981 to consider new legislation
Legislation
Legislation is law which has been promulgated by a legislature or other governing body, or the process of making it...
. His mandate was as follows:-
- The level of statutory investor protection
- how investmentInvestmentInvestment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
advice and management advice are controlled - whether law changes should be made to improve consumer protection
- the relevant developments of the EECEuropean Economic CommunityThe European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
(European Economic Community)
Gower produced his report and the Government adopted a number of his proposals in a white paper
White paper
A white paper is an authoritative report or guide that helps solve a problem. White papers are used to educate readers and help people make decisions, and are often requested and used in politics, policy, business, and technical fields. In commercial use, the term has also come to refer to...
(Jan 1985). The Financial Services Act 1986
Financial Services Act 1986
The Financial Services Act 1986 was an Act of the Parliament of the United Kingdom passed by the government of Margaret Thatcher to regulate the financial services industry. The Act used a mixture of governmental regulation and self-regulation, and created a Securities and Investments Board ...
(FSAct) followed the white paper, receiving royal assent in November 1986. Its scope centered on Investment business and activities carried out in relation to those investments.
In line with the propsals given by Gower, The FSAct named the Securities and Investments Board (SIB) as the designated agency for the supervision of investment business within the UK (the forerunner to the Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
FSA). The SIB created five Self-Regulatory Organisations
Self-regulatory organization
A self-regulatory organization is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could be applied in addition to some form of government regulation, or it could fill the vacuum of an absence of government oversight and...
(SROs), later condensed to three:
- The Personal Investment Authority
- The Investment Management Regulatory Organisation
- the Securities and Futures Authority
These were all later subsumed into the FSA.
In addition the SIB also recognised other bodies that conducted day-to-day regulation of investment business:-
- Recognised professional bodies (RPBs) (nine in total including the Law SocietyLaw Society of England and WalesThe Law Society is the professional association that represents the solicitors' profession in England and Wales. It provides services and support to practising and training solicitors as well as serving as a sounding board for law reform. Members of the Society are often consulted when important...
) - Recognised Ivestment Exchanges (RIEs)
- Recognised Clearing Houses (RCHs)