Time to reassess investment banking best practices

Time to reassess investment banking best practices

Senior Research Analyst at JN Group, Fay Samuels, says it is time for a reassessment of the laws and best practices that govern Jamaica’s investment banking industry.

Samuels’ remarks come in the wake of the massive alleged fraud at investment firm Stocks and Securities Limited (SSL).

SSL has been under intense local and international scrutiny over the past week, after it was alleged that a former employee stole over $1 billion from investor accounts. According to a statement from the accused employee, the fraud began in 2010.

Over 30 investor accounts were impacted, including that of sprint legend Usain Bolt.

Speaking on Taking Stock with Kalilah Reynolds, Samuels said a three-prong approach is needed to ensure this level of fraud does not happen again.

Government and Regulators

She said the Government and regulators have the most significant role to play, noting that it may be time for a reassessment of the laws and best practices that guide the industry.

“Investment firms already do a lot of due diligence, they have a lot of protocols in place; compliance processes, etc. Maybe we have to look at ensuring that these are up to date and current for our time and are being followed,” she said.

If the guidelines are not being followed, Samuels said that strict sanctions need to be in place.

“We also need to make sure that the Regulators actually have teeth in Jamaica… some of the regulators are really understaffed so they’re not able to go out and monitor the things they could,” she explained.

The Financial Services Commission, which regulates the investment banking sector in Jamaica, has been heavily criticised for a “failure to respond” to the issues at SSL.

According to a 2017 report, the FSC flagged SSL as a “problem institution” with a “culture of failure to comply and mismanagement of client funds”; however, SSL’s licence was never suspended.

In a press conference on January 18, the commission said that suspending an institution is a last resort. The FSC said it seeks to find ways to bring the institution into compliance before taking that step.

Executive Director of the FSC, Everton McFarlane, said that he believes the commission is capable of regulating the industry.

McFarlane has since resigned as head of the FSC, effective January 31, following intense pressure and scrutiny of his leadership.

Industry stakeholders

Samuels also said that industry stakeholders must keep each other accountable to uphold the integrity of the entire sector.

“They have to make sure the best practices are reinforced because they have to ensure that consumer confidence is maintained,” she said.

Some of those best practices include getting regular account statements and regular meetings or discussions with wealth advisors.

Business writer at the Jamaica Observer, David Rose, also noted that there should be some level of separation within brokerage firms.

“In brokerage firms, there’s supposed to be some level of independence, to an extent, between departments. So, it shouldn’t be the case where an advisor is also doing trading,” he said.

Finally, Samuels said that investors must also play an active role in ensuring their funds are accounted for and secured.

“Before you even invest with a company, make sure to do your own due diligence. Check their records to see if they are up to date with their licences and requirements from the FSC,” she said.

Samuels advised that after setting up the account, ensure that you receive regular account statements.

“You are required to receive statements from your broker at least once per year. Some brokers are very good; they do it every month, but some brokers don’t send statements frequently,” she said.

Samuels added that it is important to request not only position statements but also activity statements that show what’s been going on with your account.

“How many stocks are being sold? How many stocks did you buy? How much is left in your account?,” she explained.

In addition, she said it’s important to do independent verification to ensure that what is given in your statement is accurate.

Rose noted that the Jamaica Stock Exchange’s website allows investors to confirm their financial position.

“On the JSE’s website, you can put in your JCSD (Jamaica Central Securities Depository) number and certain information and you can exactly see your stock holdings coming from the JCSD system. That’s one way you can actually check for yourself that what you get in your client statements is what is on the JCSD records,” he said.

“The clients also have a responsibility to make sure that they have their money in a safe place,” Samuels said.

WATCH THE EPISODE HERE

Sashell Williams2024-09-03T21:40:31-05:00