Big investors baulk at FSA bank oversight

By Raji Menon

LONDON (Reuters) - Major institutional investors boadly welcomed David Walker's report on improving corporate governance in banks, but baulked at the idea of the financial regulator monitoring fund managers' compliance on engagement.

In a widely anticipated report, Walker said on Thursday bank governance should be overhauled and institutional shareholders should be made formally accountable for the first time for their engagement with bank boards.

"We question the recommendation that the FSA should encourage commitment to the Principles of Stewardship as best practice. This is not an appropriate part of the process of FSA authorisation," said Richard Saunders, Chief Executive of the Investment Management Association.

"We do not believe the regulator should get involved in what is the best way to manage money."

Key plans include a proposal for the Financial Services Authority (FSA) to monitor whether fund managers are fully disclosing compliance with new rules on engagement with banks.

Walker, tasked by Prime Minister Gordon Brown to examine the governance failings that sparked the near-collapse of the banking industry, also proposed greater powers for the Financial Reporting Council to ensure fund firms stick to new "principles of stewardship" set out by an industry body.

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Peter Montagnon, director of Investment Affairs of the Association of British Insurers, said: "We do not believe that the authorities should assess the level of compliance - this does not happen to companies under the Combined Code."