Fallout out from a spate of recent boardroom scandals reached the Republic's brokerage sector yesterday when it emerged that over half of investment analysts will be subject to tougher ethical guidelines unveiled by a British watchdog.
The Financial Services Authority (FSA) announced it was tightening its code of conduct to restore confidence among small shareholders in investment research. The move is intended to bring Britain's regulatory regime in line with the US, where strict corporate governance rules were introduced in the aftermath of the Enron collapse.
About 100 analysts are bound by FSA regulations by dint of their membership of the UK Society of Investment Professionals, a prerequisite for participation on the London Stock Exchange.
The FSA proposes to prohibit analysts from dealing in shares they write about, end links between analyst pay and the investment banking business, and restrict them from pitching for investment banking mandates. The regulations will apply to Irish analysts who do business with investors in Britain.
The authority drew up the guidelines after uncovering evidence of "systematic bias and bad management of conflicts of interest" among a minority of city analysts.
The Society of Investment Analysts in Ireland (SIAI) played down the significance of the clampdown, saying the bulk of the measures were duplicated in a code of ethics to be introduced next month by SIAI's American parent body, the Association of Investment Management and Research (AIMR).
Mr Robbie Kelleher, economist with Davy stockbrokers, said his firm's internal checks and balances were at least as stringent as those put forward by the FSA.
The Irish Association of Investment Managers welcomed the FSA guidelines, noting they differed fundamentally from AIMR regulations as they were enforced by a State regulator rather than adopted voluntarily by individual practitioners.
Some commentators warned the FSA's move may represent the thin end of the wedge with stricter ethics regulations set to follow.
Mr John Tattersall, financial services partner at PwC, said: "I think the UK investment banking community has, in effect, been put on probation and, if they are not seen to be implementing the FSA proposals, they could face more draconian measures like the US."
Mr Christopher Braud, financial services partner at Accenture, said: "I think the FSA is being cautious about not giving out prescriptive rules and putting more responsibility on the management of the banks."
Irish brokers are subject to the rules of conduct of the stock exchange, which are overseen by the Central Bank. A Bank spokesman said its new financial services regulatory wing, IFSRA, may examine the issue of broker governance, but cautioned it is too early to chart a timeframe.
A European Union directive setting out stringent new regulations for investment firms is being drafted and is expected to come into force within the next 18 months, he added.
