The Gazette 1987

GAZETTE

JULY/AUGUST 1987

Investor Protection The effect of the changing U.K. regulations in Ireland

by Ronan O'Houlihan and Dr. Eileen Fitzpatrick B.Sc., M.Appl.Sc., Ph.D.

The necessity of providing greater regulation wi thin the securities industry has become increasingly apparent in recent years. Whilst inadequacies in the existing legislation have been obvious for some time, they have become more acute against a background of deregulation in international markets where the risk exposure for the investor can be increased. In Ireland this necessity has been brought into sharp focus by the proposed development of the Custom House Quay as an international financial centre. In order to establish the credibility of the centre, it must be structured on a three-tiered basis. The fiscal and physical infrastructure have been well analysed. It is our contention that the introduction of an appropriate regulatory framework is equally important if the centre is to attract international participants of the highest quality.

financial became common. Within those con- glomerates, because of the dual capacity system in which the broker is also a market maker, there is greater potential for the occurrence of " c on f l i c ts of interest". This is borne out by the recent events at Lloyds, which arose as a direct result of members being able to act in a dual capacity. It is ironic that, just as the rest of the City is converting to dual capacity, Lloyds have decided to revert to single capacity to avoid the re-occurrence of such a situation. Another important consequence of deregulation in the U.K. is that the powers of the old self-regulatory organisations became defunct. The resulting gap will be filled by a private city body, known as the Securities Investment Board, which will oversee a network of new self- regulatory organisations within the framework of the new legislation. The changes which have occurred in the U.K. market have served to highlight the fact that we have no proper or, indeed, any statutory f ramework wh i ch seriously addresses the problems of the modern securities industry in Ireland. The immediate effect has been to create a regulatory vacuum in the Irish financial sector. Prior to services tory. Many District Courts are physically unsuitable for the con- duct of family law cases and the length of the lists in many District Courts has created difficulties in ensuring that such hearings can be held in camera and still be dealt with quickly. Perhaps the recently reviewed Committee on Court Practice and Procedure could be asked to take a hard look at the basis upon which jurisdiction is allocated to particular courts, with a view to removing some of the present anomalies. •

as both principals and agents. On 27th October 1986 ("Big Bang" Day) the Stock Exchange brought into effect the last of a package of reforms to its rules and trading arrangements of wh i ch the switchover to dual capacity and the abolition of fixed commission formed the major part.

In the U.K., the final stages of deregulation ("Big Bang") occurred in October last year. In conjunction with these changes a new legal f r amewo r k, wh i ch will con- siderably step up the standard of investor protection, is about to be imposed. The revolution in communi- cations technology which has occurred in the financial world in the past decade has made 24-hour trading in financial markets the order of the day and placed them in a global rather than domestic context. As more and more markets deregulate and open up to foreign trade, the distinguishing line between international and domestic markets grows even finer. In the wake of these developments, London, by tradition a major international financial centre, was forced to de- regulate to restore a competitive edge which it had been losing for some time. This was largely due to the existence of a system based on single capacity which separated functions into agency or principal roles, providing protection for investors through self-regulatory organisations such as the Stock Exchange. This, in combination with the high transaction costs entailed in fixed commissions, was causing London to fall behind other major financial markets which, by and large, had adopted the dual capacity system where brokers act

Ronan O'Houlihan and Dr.Eileen Fitzpatrick are members of Montgomery Govett Ltd., Investment Managers, 31 Mount Street, Dublin 2.

Traditional barriers thus broke down and multifunctional con- glomerates, which offer a range of

V I EWPOI NT (from p 175) modest strength which might as usefully be brought in the Circuit Court as in the High, and with a corresponding reduction in expense. There is, however, one area in which it can be strongly argued that there is a case for integrating the system and having one court deal with all matters and that is in the area of family law. The division of jurisdiction between the three levels of courts having original jurisdiction is puzzling. The attempt to extend the jurisdiction in family law matters to Circuit and District Courts has been quite unsatisfac-

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