Investment industry needs voluntary code
The investment industry needs to move quickly to voluntarily adopt new standards or risk the constraints of added legislation, according to Thomas Bowman, president and chief executive of the Association for Investment Management and Research (AIMR).
'Unless companies demonstrate that they can regulate themselves we are going to end up with more regulation and, frankly, many of us are not going to like it,' said Mr Bowman, who heads the world's largest investment analyst group.
'The crisis of confidence is persisting, and it is not going to go away until corporates and executives realise that they owe [it to] their shareholders to be active and forthcoming with regard to policies . . . for minimising and dealing with conflicts of interest, both on the financial side as well as the corporate side.'
Mr Bowman was in Hong Kong last week for a panel discussion on the AIMR's proposed set of global ethical standards, which is open for consultation until Thursday and is expected to be issued early next year. The standards are designed to complement and expand upon new rules issued recently by the New York Stock Exchange and the National Association of Securities Dealers for their members, which relate to analyst independence and objectivity.
The AIMR proposals are far-reaching and include prohibiting research analysts from sharing reports with companies prior to publication, paying analysts according to the quality of their research, and ensuring employees do not share information with anyone who could trade in advance or otherwise disadvantage investing clients.
The association has more than 50,000 members worldwide and administers the respected Chartered Financial Analyst programme. Forty-five per cent of its members work on the 'buy side' of the financial industry, 18 per cent are on the 'sell side' and the remainder include investment advisers, consultants and regulators. It has no corporate members.
'These [standards] are aimed at corporations . . . The focus here is to put out some of the best practices and hope - market forces being what they are - that firms will voluntarily adopt them,' Mr Bowman said.
He said recent regulatory changes such as the tightening of United States auditing rules were needed, but he cautioned that more regulation would have downsides, including adding to firms' compliance costs.
A proposal by the Securities and Exchange Commission to totally spin off the research effort from the sell side in investment banking was another example.
