FSA chief executive Hector Sants has said pension funds must shoulder some of the blame for the financial crisis and will play a crucial role in any recovery.
Speaking at the National Association of Pension Funds investment conference in Edinburgh, Sants called on pension funds to help avoid future financial crisis by taking a far greater role in checking on management performance and risk in companies they owned.
He said: "I have questioned whether, if there had been more effective and collective shareholder intervention whether the financial crisis we are witnessing today would be as severe."
He also said investors had, in future, to make sure they understood what they were investing in.
"You have a major role in addressing the issues arising from this financial crisis," he told delegates.
"As owners we would encourage you to focus on the issues of governance, risk management, business strategy, and the issue of compensation."
He said in order to do that pension funds would have to engage more actively with senior management and non executive directors, but that ultimately funds had to organise themselves more effectively for collective action.
One audience member described Sants suggestion that pension funds should be at least partly blamed for the financial crisis as "staggering" and asked Sants whether the regulator should have done a better job in ensuring the information coming from companies was of a better quality.
Sants agreed that more could have been done in this area, and said the FSA had already accepted it had been partially at fault. However he said there had been a "laziness in the system in the use of credit ratings agencies" suggesting that investors had become too reliant on them.
NAPF chairman Chris Hitchen commented: "It is not our job to manage companies. We can only set a framework about what we expect from the companies we own."
He added: "In the future executives of companies will have to wait longer for remuneration, which will bring them in closer alignment with with the owners."
From Professional Pensions