Volatility brings regulatory flaws into focus

Richard Gilbert

The Federal Government is being placed under pressure to further amend the regulatory environment covering the financial services industry in the face of executive directors of publicly-listed companies facing margin calls and broking houses failing to settle.

Spokesmen with the accounting, funds management and financial planning industries have all expressed concern at the events that have occurred in Australia since the beginning of the year, including directors in publicly-listed companies such as MFS Limited and Allco Finance being subject to margin calls and Tricom Equities being unable to settle trades.

The chief executive of the Investmentand Financial Services Association, Richard Gilbert, has urged against any precipitous response on the part of the Government, but acknowledged that there is a clear need for change with respect to the broking industry.

His comments came at the same time as the managing director and chief executive of Perpetual Trustees, Graham Bradley, expressed concern that the existing regulatory environment might be found wanting.

“The strength of the regulatory changes made so far has not been fully tested — but I fear it will be very soon, and found wanting,” Bradley said.

“While recent regulatory changes were being implemented, equity and property markets were helping fund managers provide excellent performance, keeping investors very happy. Is this growth covering up systemic flaws?

“Market corrections this year may well expose inadequacies in the system — particularly in the critical area of investor protection,” he said.

His comments came as an accounting industry spokesman claimed directors of publicly-listed companies in which they also have an interest should be precluded from using that interest as collateral against margin loans.

The chief executive of accountantsRus, Adrian Raftery, said in the wake of recent events affecting at least two major publicly-listed companies in the past month, including Allco Finance Group, he believed the Australian Stock Exchange needed to regulate against company directors being able to utilise their public company’s shares as collateral against margin loans.

For his part, Gilbert believes there is a need to focus on recent events in the broking industry and the possibility of imposing licensing conditions entailing holding sufficient capital and liquidity.

He said that there was also a need for more transparency and “equality of information” with respect to market events.

“When these things happen we need equality of information and what we have witnessed in recent weeks is asymmetry of information availability,” Gilbert said.

He said he disagreed with suggestions that specific new regulations or legislation ought to be introduced with respect to trading by directors of publicly-listed companies when existing Corporations Act and Australian Securities andInvestments Commission regulation covered such arrangements.