| Regulator calls for greater self governance of incentives for executives |
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| An emphasis should be placed on the link between the incentives of executives and prudent and sustainable business strategies, said the Financial Regulator Patrick Neary, addressing the Finance Dublin Global Financial Services Centres Conference. Neary called on greater self governance of remuneration and the need to maintain a reputation of the financial services industry. Neary said, an area where there is a momentum for change is in relation to the transparency of the market with the need for the market awareness of significant holding of CFDs. |
On self governance & incentives
‘It is imperative that the boards and management, who are closest to the businesses of their respective regulated entities, have robust policies, systems and controls in place for their main areas of operation and their main risks. Boards and management have a duty and responsibility to question policies and to interrogate sources of profit to ensure that risk is well understood
and managed.’
‘We believe that there is an increasing need to ensure that the incentives for key business executives are not in conflict with prudent business developments. While it is clearly a matter for boards of firms and their shareholders to decide appropriate remuneration levels, it may be the case that greater and more transparent emphasis be placed on the link between incentives and prudent and sustainable business strategies.
‘The key challenge for all institutions is to develop a culture within their organisations that fosters compliance and high ethical standards. Those who genuinely promote these standards will ultimately gain from them.’
‘It is difficult to envisage having an international financial services centre of high repute without having financial institutions of good standing and having a fair, efficient and transparent securities market. Many of you will recall that some months ago we had occasion to issue a public reminder to the industry about the need to handle market rumours in a responsible fashion.’
‘However, I would like to say the following to all market participants - the reputation of your industry is the foundation of your prosperity and that reputation is in your hands.’
Market abuse & CFDS
‘Traditionally the guardian of market integrity has been the Irish Stock Exchange. I believe strongly that the Irish Stock Exchange has done a conscientious job in monitoring on-market trades in shares, using powers available to them. While we will continue to rely on the Stock Exchange to be vigilant and to supervise its market closely, trading has become more complex and this is the challenge that we as the new competent authority for market abuse face.’
‘There are now alternative market venues. Trading in securities happens on an increasingly international level, there are alternative ways to take a position on shares other than buying or selling the share; spread contracts and Contracts For Difference are only the most straightforward of those. For that reason, we very much welcome the fact that since late 2007, the Financial Regulator now has the legislative power to collect the information on all share trading, not just ‘on-market’ trading. Those new powers give us the opportunity to develop a whole new layer of supervision of market activity. We flagged in our 2007 strategy that this is an important new target for us. It is a very difficult job. It will take us some time to get it right and it will never constitute an absolute guarantee or safeguard against market abuse. But it does reflect an important conclusion that has been reached here and among regulators across Europe: the market has become more complex, so supervision must become more complex to keep up.’
‘One area where we see a momentum for change is in relation to the transparency of the market. A prime example is significant holdings of CFDs and the need for the market to know when a person has a significant holding of CFDs. Again, this is an international issue and we are currently consulting with our colleagues in the FSA. We would like to see a similar approach in both jurisdictions, so that there is no possibility for regulatory arbitrage between the two.’
‘Meanwhile the requirements in the Transparency Regulations require announcements to be made in relation to financial instruments that provide an option to purchase. This would arise in the case of CFDs, which sometimes include such options to purchase. In those cases, announcements must be made to the market.’
‘Effective compliance in our stock-brokers, continued vigilance by the Irish Stock Exchange, clear messages from institutional investors about the standards they expect and a Financial Regulator committed, as we are, to building the complex supervisory framework required for this complex market – those are the elements that go to make up a healthy securities market.’ |
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| Article appeared in the July 2008 issue.
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