SCHRODERS Asia's decision to make public the sacking of three employees, involved in two mutual funds, for irregular practices is to be hailed. But it should disclose details of the irregularities, committed by staff in the sales and administration departments, to scuttle dismayed fund holders' suspicion.
The staff were fired after irregularities were discovered in the administration of the Schroders Japan Fund and Schroders Hong Kong Fund. The funds' holders, who might have suffered financially from the irregularities, deserve an explanation.
Instead of sweeping the dirt under the carpet, Schroders chose to inform the funds' trustees and the Securities and Futures Commission (SFC) about problems associated with the funds. The company's courageous move sets an example for other fund management companies in Hong Kong. Thousands of people invest in mutual funds, with many putting in their entire life-savings. The last thing they want is a rough deal.
Schroders' case could be an isolated one, or the tip of an iceberg of some more serious problems in the industry. Many fund management companies, for fear of damaging their reputation, would have rather handled their staff's malpractices quietly. It's time they tightened house-keeping and plugged possible loopholes. Self regulation is always better than government intervention.
The SFC, nevertheless, should re-examine its supervision procedures to prevent recurrence of similar cases. Its close scrutiny of the incident, and insistence on more transparency in general, will deter crooks in the fund management industry from taking advantage of the thousands of acquiescent investors.
In the meantime, Schroders should compensate investors in the two funds properly if they are disadvantaged by the staff's irregular behaviour which the company has yet to elaborate. The bad apples may have tarnished Schroders' image in the short term. But its candidness undoubtedly will earn investors' trust and confidence in the long run.
