Cost of compliance a price worth paying

PUBLISHED : Saturday, 11 September, 1993, 12:00am
UPDATED : Saturday, 11 September, 1993, 12:00am

THE appointment of a specialist whose sole job is to roam the offices of a brokerage or investment house has become compulsory in some markets. It is he who ensures that the house complies with the rules.


The keys to the doors of departments where price-sensitive information might mingle are safely chained to his belt. His ears are alert to the key word in taped conversations of traders' dealings.


No document, offer or proposal should be slipped into a fax machine without being scanned by his gimlet eyes.


Alan Mercer's appointment to Peregrine Brokerage as director of compliance is the thickening of a wedge in Hong Kong, a wedge that has been hammered firmly home in other markets.


The cost of compliance is one of the biggest moans now heard around the London financial markets as its members go in fear of having the thick list of rules enforced by the Securities and Investments Board hurled at them.


For all its enthusiasm for ensuring that Hong Kong's market is clean and fair, the Securities and Futures Commission (SFC) has yet to inflict the sort of regime that many warn will eventually stifle the London market.


Nor does it have the power to inflict financial pain on a house it believes has broken its rules, although individuals can feel its wrath.


If employers could also be fined for the excesses of those who work for them, then the $3.5 million which Peregrine donated to the Unified Exchange Compensation Fund might have turned into a very different figure.


But, as the SFC points out, it presently has no statutory authority to impose financial penalities. Note the ''presently''.


Every market eventually finds itself with the regulatory regime it deserves, and, like taxes, regulations tend to multiply unless there is a very firm resistance to them.


Luckily Hong Kong has shown that resistance, and has prospered, but as the ambitions to become an international market grow, so will the rule book.


By acting swiftly to put its own house in order Peregrine has set an example that other players in the financial markets should follow.


The costs of compliance may be high, but the price of not voluntarily developing a system to sweep bad practices out of the door would be very much higher in the long term.


 

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