I know it's uncanny, but.....

...the last time, I made reference to the knotty issue of compensation provided to clients in other jurisdictions for the failure of financial institutions.

With the Ross case progressing to its almost inevitable conclusion – lo and behold, this very issue of victim plight has emerged.

One of the unfortunate investors caught outside the Wellington High Court by the media stated that the Authorities had no interest in their (the investors’) circumstances, and that they (the Authorities) only wanted to see Ross locked up for a long time.

And here’s the nub of the matter – Mr. Ross may or may not, go to jail for a long time; he may or may not, have funds salted away offshore somewhere for when he does emerge from whatever custodial sentence he will undoubtedly receive.

But what is sure-fire, 100%, cast-iron guaranteed – once the sentence is handed down, the regulatory authorities will lose interest in the case, leaving the investors out-of-pocket, in many cases financially stressed, and in other cases completely wiped-out.

Oh yes, there may be some perfunctory efforts to trace whatever is left, wherever that happens to be, and who knows, some smart forensic fraud expert may even track down some of the funds. But by the time this occurs – if at all – many of the investors will have gone down the financial gurgler, and regrettably, a few will be pushing up daisies, having ended their days in abject poverty.

In the meantime, the regulators will be doing high-fives at the news of Ross’ conviction, happy that they’ve done an efficient job in tracking down and locking up one of the biggest per capita Ponzi Schemes in history.

And the focus on punitive measures intended to prevent future occurrences will be granted a shrug of the shoulders by the next Mr. Ross off the blocks – and there will be one, mark my words.

Perhaps not so blatant and obvious as the Ross Asset Management scam, or even as unsubtle as the ANZ Bank / ING suggestion - “CDOs are akin to bank deposits” – but somewhere along the track, a punter is dreaming up a scam as this is being written and read.

It’s all very well for regulators to exhort ‘caveat emptor’ when investment schemes go wrong, or a criminal gets in on the act, but the consumer is powerless in the face of smart financially savvy operators, and in reality has FA chance of identifying a crap AFA from great RFA.

There is no suggestion that investors should be immunised against investment risk – that’s how gain is achieved after all. But the industry needs to contemplate some form of financial compensation fund which encourages the industry participants to be vigilant and to prevent outlandish behaviour, propositions, or exaggerated promises of exorbitant wealth.

In the U.K. Life Insurance industry, the Policyholders Protection Fund has the players allocating real resources to policing their industry – and even then, scandals regularly erupt.

An investor compensation scheme funded by the product providers isn’t the perfect answer, and it would attract vociferous opposition from fund managers, life companies, and banks – after all, their meagre profits are constantly being squeezed by shareholders, customers, and gazillion dollar bonuses to senior executives.

But I bet every one of the victims of the Ross Asset Management scam would express a different point of view.

Abandoning victims of financial services industry criminals to their fate is a disgrace and the industry – and the regulators – need to wake up to the cruel and damaging indifference shown towards these ruined clients.

These individuals are victims of an industry which is inadequately governed and poorly regulated.

There is more effort expended inside the regulating entities in the pursuit of corporate performance in being a “good employer” or meeting KPI targets, than preventing (not catching) wrong-doers.

The prime directive of an effective financial regulatory regime is surely to provide protection for consumers against criminal activity in the financial services sector which facilitates the theft of investors’ funds.

Tell that to the aggrieved investor interviewed by TVNZ outside the High Court – go on, I dare you!

Slainthe

The Laird