Central Bank says top clients of stockbrokers are 'systemic risk'
Published 27/05/2011 | 05:00
The Central Bank has refused to budge on its demand that Ireland's major stockbrokers reveal their top three clients to regulators, arguing that these larger clients pose a "systemic'' risk.
Davy and Goodbody have already objected to providing such a list claiming it may breach data protection rules and is highly sensitive information.
But, in a response, the Central Bank has spelled out the position that it must be given such information in quarterly client funds reports.
The bank, led by governor Patrick Honohan (above), is worried about what it calls "concentration risk'', meaning that brokers have a lot of money tied up in just a few clients.
Davy and Goodbody have asked the bank to explain why it thinks providing such information is necessary.
"Concentration risk is a key regulatory concern,'' the Central Bank has said. "Investment-firm reliance on identified individual clients could pose firm, sector and/or systemic risks,'' it added.
Giving the names of the top three clients "will enhance the assessment of such concentrations'', it said.
"The Central Bank confirms that the online reporting system is fully compliant with data protection requirements,'' the organisation said, rejecting claims that providing such information might break data protections rules.
The bank said it was privy to sensitive information all the time, but kept this information confidential as part of its "supervisory duties''.
A joint letter from Davy and Goodbody has highlighted the issue. "We have a general concern about reporting our top clients -- we cannot see the relevance of this except in a risk concentration scenario. Could we report this information without naming our clients?'' asked the brokers in the letter.
Clients of brokers often trade on margin, meaning they don't settle all their liabilities upfront. But brokers who spoke to the Irish Independent said it was unusual for clients not to settle a big trade within a few days.
Credit lines extended to broker clients are also well policed, they claimed. However, with so many clients still trading in heavily leveraged instruments like CFDs, clients can often build up significant exposures within a short period in volatile markets.