Legal gap prevents broker probes
ISE says EU directive rules out investigating complaints about conduct prior to 2007
Published 10/03/2010 | 05:00
A major gap has emerged in relation to Irish authorities' ability to probe the conduct of stockbrokers prior to the introduction of key EU rules in November 2007, an Oireachtas committee heard yesterday.
Top officials from the Irish Stock Exchange (ISE) told the committee its hands are now legally tied when it comes to investigating complaints from non-consumers -- including credit unions with turnover in excess of €3m -- into the activity of brokers. Before the introduction of the EU Markets in Financial Instruments Directive (MiFID), the exchange was responsible for dealing with non-consumer complaints against member firms. The Financial Regulator has become the central authority since the legislation was introduced.
Powers to probe consumer complaints against brokers had been handed over by the ISE to the Financial Services Ombudsman in December 2005.
ISE chief executive Deirdre Somers (right) said the Financial Regulator approved the exchange's deletion of rules of investigation when MiFID came in. However, the new rules do not allow for the Financial Regulator to investigate complaints on broker activities prior to its introduction.
Ms Somers said: "We are led to believe that the Financial Regulator has received complaints against stockbroking firms relating to the period prior to November 1, 2007, however, we are not in a position to speculate on the exact nature of the issues."
She added: "As neither organisation has current investigative powers, there is a significant legal gap."
The bourse boss highlighted that "obviously, recourse to the courts remains a viable, albeit expensive, option".
In January, for example, Greystones and District Credit Union in Co Wicklow initiated an action against Bloxhams after losing some €1.25m as a result of allegedly negligent advise in relation to an investment bond, which has since collapsed in value.
Separately, Bloxhams is suing Morgan Stanley in the UK alleging breach of contract relating to the bond.
In 2008, the then-Financial Services Ombudsman Joe Meade ruled that Enfield Credit Union was sold unsuitable bonds by Davy. The stockbroker eventually agreed to pay compensation of €38m to cover losses to 136 credit unions that lost money on bonds it sold.
ISE chairman Padraig O'Connor said, however, that the exchange has received legal advice that a specific provision in the MiFID legislation could be used to allow the regulator probe cases prior to November 2007. Section 79 (1) of the directive allows that the watchdog "may impose requirements addition to those in these regulations" in exceptional cases -- with the approval of the Minister for Finance of the European Commission.
A spokesperson for the Financial Regulator said that this "is a matter of consideration". However, it is understood that the watchdog has also received legal advise that this section of the directive could not be used to close the gap -- though it is continuing to explore its options.