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Retail stockbroking rules to tighten across Europe due to new standards Back  
Irish stockbrokers and investment managers are facing a tightening of the rules on how they conduct their retail business due to rules developed by the Committee of European Securities Regulators (CESR).The rules are not yet mandatory but they represent industry best practice and will be implemented in European countries over the coming months.
The Committee of European Securities Regulators (CESR), one of the committees set up to implement the recommendations of the Lamfalussy report, has brought out a comprehensive set of standards and rules aimed at increasing investor protection for retail stockbroking across Europe and providing harmonised business rules for retail investing.

The CESR guidance document ‘A European Regime for Investor protection: The Harmonization of Conduct of Business Rules’ outlines standards of general application, details information that must be provided to customers, and places increasing emphasis on duty of care and ‘know your customer’ standards. The rules and standards also call for stricter customer agreements and individual discretionary portfolio management.

The rules are intended to be mandatory across Europe and are likely to be legislated for by each individual member state. The rules are part of the Europe’s move towards a single financial services market outlined in The Financial Services Action Plan - full implementation of which is pegged for 2003.

The 140 detailed standards and rules cover most of the activities of a retail financial house from how the company can market itself, to how activities like ‘cold calling’ may be carried out and specifies that commission structures must be disclosed to investors.

Irish stockbrokers have welcomed the comprehensive proposals. Ireland’s representation on the CESR committee is through the Central Bank with Dr Liam O’Reilly, assistant director general of the Central Bank participating in the meetings of the CESR.

Commenting on the developments at CESR, Pat Neary, head of securities and exchange supervision at the Central Bank of Ireland said the new rules once implemented were unlikely to cause added obstacles to Irish retail stockbrokers as the current legislation governing their conduct was already ‘comprehensive’ he said. He added that the Central Bank had consulted widely with the industry prior to the announcement of the new standards.

John Keilthy, chief operating officer of NCB Group echoed this sentiment, ‘Irish brokers already comply with the vast majority of these proposed rules. Both the Central Bank and the Stock Exchange have been extremely thorough in developing the Irish rulebook governingdealings with retail customers. While there might be some debate about the detail ofa number of the rules, the spirit of protection afforded to retail customers in the CESR guidelinesis already enshrined in the present regulatory framework in Ireland.’

One development of the CESR rules could be the loosening of the Irish rules on ‘cold calling’, which are substantially tighter in Ireland than across mainland Europe. This could lead to a loosening of the cold calling legislation in order to comply with the CESR standards and rules.

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