Bad things can happen in any financial services firm. None are immune to internal errors or systemic failure – and transgressions by wayward employees are, unfortunately, an occasional hazard of real life. What matters most, though, is how management responds when misconduct comes to light.
In particular, do the firm’s executives react by containing the problem and implementing robust measures to prevent a recurrence? Do they report the matter to regulators immediately? Does the firm compensate every harmed client in full promptly?
Smart firms do all this. They then qualify for special treatment in regulatory prosecutions that flow from the incident. For example, they receive “credit for co-operation” that can reduce fines substantially – by millions of dollars in one recent case alone.
In some jurisdictions such as Ontario, these firms also become eligible for “no-contest” settlements, which resolve enforcement proceedings without the firm having to make an admission of wrongdoing that could come back to bite it if any clients sue afterward.
This policy of giving prosecutorial discounts in deserving cases is meant to lighten the punishment that gets meted out. But what we really should be asking is: why are these firms being prosecuted and punished at all?
By their own initiative, they’ve promptly put things right, including, most importantly, compensating everyone who was affected adversely. Firms that do so are poster children for corporate responsibility. If we want to encourage more such behaviour, spanking them doesn’t make a whole lot of sense.
Instead, we should be lauding them and easing the path for others to follow their example. So, why not simply create an administrative process allowing them to submit paperwork detailing what happened and documenting, specifically, these six key things:
- Their non-compliance was inadvertent or the result of rogue employee misconduct that the firm did not encourage, countenance or know about.
- The problem did not arise and its detection was not delayed by a lack of diligence on management’s part.
- The firm didn’t ignore or attempt to cover up the incident.
- Internal processes have been strengthened sufficiently to ensure the problem won’t occur again.
- Appropriate disciplinary action has been taken against every employee who engaged in deliberate wrongdoing.
- Every client harmed by the error or misconduct has been identified, the extent of the harm they’ve suffered has been accurately determined, and the firm has fully compensated them.
Let regulators pore over the material and investigate further as they deem necessary. But ultimately, if they’re satisfied that these six criteria have been met, the only action they should take against the firm is to identify it in a news release about the incident.
That bulletin should set out a description of the wrongdoing in enough detail to let the public understand the nature and gravity of it. Measures taken by the firm in response should be mentioned, including the fact that all affected clients have been made whole. Regulators should state they are satisfied the firm dealt with the event appropriately.
And that’s it.
No need for officials to crank up their costly enforcement battle machinery, as a state of compliance has already been restored. No need for the firm to deploy reputation management countermeasures. No stigma. Best of all, no need for investors to spend money and incur angst to secure recompense. Everybody wins – except any employees who went rogue, if that’s what caused the problem. They would still get prosecuted, and deservedly so.
Currently, regulators are limited to issuing a “no action” letter when they approve of the firm’s response and want to hold off taking enforcement action. The letter forms part of the firm’s record but is not disclosed publicly. That’s less than ideal as it fails to provide transparency. It also doesn’t capitalize on the opportunity for encouraging others to follow the firm’s good example.
Moreover, this approach keeps the matter pinned to a narrative that’s essentially negative in slant (we’ve decided not to prosecute you) instead of a celebratory one (you dealt with the situation well).
So, again, why not move these cases out of enforcement altogether and into a purely administrative process that isn’t freighted with prosecutorial overtones and limitations.
Perhaps there would be concerns about diminished deterrence – i.e., won’t this initiative foster a cavalier attitude toward supervision if companies can just clean up any messes when they occur and then walk away, penalty free?
Another related concern might be optics: will this make regulators appear soft on misconduct?
The short answer to both questions is no. Recall that the program would excuse only non-compliance arising where there has been either no complicity or lack of diligence by the firm[PF1] . Those who have turned a blind eye to wrongdoing or have been lazy in their oversight duties won’t qualify for exemption. They’ll still face fines, denunciation and suspensions or bans and deregistration, where warranted.
So, this approach isn’t soft on malfeasance. Yet, it offers maximum redemption for those who act responsibly when “stuff happens.” It’s a big carrot, to be sure, but the deterrent stick’s still there to whack anyone in management who enables transgressions.
In addition, this approach emphasizes that the true dividing line between culpable misconduct and pardonable error lies in whether the wrongdoing was intentional or inadvertent, and whether good or bad choices are made once the problem surfaces.
Finally, this approach prioritizes getting redress for harmed investors – something regulation hasn’t always focused on as much as it should. That’s the right priority. So let’s actualize it now by stepping up from a system that offers credit for co-operation to one that strategically sets punishment aside and gives kudos for accountability instead.
Neil Gross is president of Component Strategies, a capital markets policy consultancy in Toronto.
FedDev Ontario Investment Contribution to TRCA Will Support Enhanced Visitor Experiences at Bruce's Mill Conservation Park – TRCA
August 9, 2022, Toronto, ON – Visitors to Toronto and Region Conservation Authority’s (TRCA) Bruce’s Mill Conservation Park in Stouffville, ON will enjoy enhanced experiences thanks to an investment contribution from the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) that will help to revitalize the park infrastructure.
The Honourable Helena Jaczek, Minister responsible for the Federal Economic Development Agency for Southern Ontario and Member of Parliament for Markham-Stouffville made the funding announcement today at Bruce’s Mill.
The investment contribution of up to $740,715 will support improvements at Bruce’s Mill intended to positively impact both the local community and visitors to the park, allowing more people to re-engage with their communities and nature.
These improvements include: the installation of two new picnic shelters, the addition of 15 new accessible picnic tables for community use, and the upgrading of three washrooms to improve accessibility and physical distancing components. In addition, the park access roads and parking lots will be paved and repaired.
“Our government is investing in community infrastructure to support the mental and physical health of Canadians by promoting social interaction and physical activity. This Canada Community Revitalization Fund investment for Toronto and Region Conservation Authority will help revitalize the Bruce’s Mill Conservation Park’s public infrastructure. This revitalization will help draw visitors to Bruce’s Mill, where they can come together, enjoy the outdoors and be active.”
— The Honourable Helena Jaczek, Minister responsible for the Federal Economic Development Agency for Southern Ontario
“The investment by FedDev Ontario will not only improve visitor experiences at Bruce’s Mill but will accommodate the increased demand for outdoor recreation and provide safe alternative recreational activities as we all recover from the COVID-19 pandemic. It is investments like these that allow TRCA to keep our parks and trails in a state of good repair while increasing community connection and improving accessibility to our visitors.”
— – Michael Tolensky, Chief Financial and Operating Officer, Toronto and Region Conservation Authority (TRCA)
TRCA’s Bruce’s Mill Conservation Park
Conveniently located off Highway 404, Bruce’s Mill Conservation Park is a popular destination for the five million residents within our jurisdiction and from many tourists from around the world. In addition to picnic areas and trails, recreational facilities at the park include a professionally designed golf driving range and a BMX cycling track. To learn more visit trca.ca/bruces-mill.
About Toronto and Region Conservation Authority (TRCA)
With more than 60 years of experience, TRCA is one of 36 Conservation Authorities in Ontario, created to safeguard and enhance the health and well-being of <span data-trca-tooltip="
The entire area of land whose runoff water, sediments and dissolved materials (nutrients and contaminants) drain into a lake, river, creek, or estuary. Its boundary can be located on the ground by connecting all the highest points of the area around the river, stream or creek, where water starts to flow when there is rain. It is not man-made and it does not respect political boundaries.” class=”glossary-term”>watershed communities through the protection and <span data-trca-tooltip="
To repair or re-establish functioning ecosystems; the process of altering a site to establish a defined, native, historic ecosystem; the goal is to emulate the structure, function, diversity and dynamics of a specified ecosystem.” class=”glossary-term”>restoration of the natural environment and the <span data-trca-tooltip="
Ecological services are defined as the overall benefits to humans arising from a functioning healthy ecosystem, which includes improved water quality and quantity, air quality, soil stabilization, flood mitigation, balanced hydrologic regimes, biological processes and biodiversity. Ultimately, the streams in TRCA’s watersheds run into Lake Ontario and have a direct influence on the water quality and habitat along the waterfront.” class=”glossary-term”>ecological services the environment provides. More than five million people live within TRCA-managed watersheds, and many others work in and visit destinations across the jurisdiction. These nine watersheds, plus their collective Lake Ontario waterfront shorelines, span six upper-tier and 15 lower-tier municipalities. Some of Canada’s largest and fastest growing municipalities, including Toronto, Markham and Vaughan, are located entirely within TRCA’s jurisdiction.
To learn more about TRCA, visit trca.ca.
Senior Manager, Communications, Marketing and Events
Toronto and Region Conservation Authority (TRCA)
Short Term vs Long Term Investments: Gauging the saving spectrum – Economic Times
Quick wealth creation is what financial markets consider; however, investing as a practice is a long-term process. While an investor’s capital can be invested in the short-term and long-term, both forms of investment have their merits and demerits.
Typically, short-term investments involve less risk than long-term investments. Long-term investments give the investor’s money a substantial period to grow and recover from major dips in the market.
Having clear and crisp financial goals can help the investor decide whether to choose short or long-term investments and which vehicles within those categories aim towards personalized investment gains.
Before choosing any investment strategy, the investor ideally needs to do proper research on which asset types suits their need.
What is suitable for one investor might not be in sync with another’s financial objectives, so one must consider their overall goals along with the risks one is willing to take.
Short-term investments have a validity period typically up to three years – high liquidity instruments, generally involving lesser market risks.
Also, these temporary investments are mostly used for parking excess funds for a short period. Short-term investments are highly liquid and hence are used by investors to meet expected near-future expenses.
Less risky in nature, these short-term investment products have a short tenure and give predictable returns as compared to long-term investments be it –
● Treasury bills which can be redeemed within 91 days and is a high liquidity instrument.
● Gilt Funds which invest only in government securities and owing to zero credit risk, are safe investment funds.
● Ultra-short-term debt funds wherein the maturity period ranges between three to six months and provides comparatively higher returns.
● Low duration debt funds whose maturity period ranges between six and 12 months, these funds invest in debt and money market instruments.
● Money market funds that invest in money market instruments and have a redemption period of up to one year.
● Bank fixed deposits that can be renewed on maturity and their tenure can range from 14 days to 10 years. Also, liquidity can be a concern here as some banks don’t allow premature withdrawals.
● Company fixed deposits can have a tenure of more than one year
● Post office time deposits have tenures ranging from one to five years and similarly Recurring deposits can open an RD for a duration as low as six months. Sweep-in-Fixed Deposits as against low returns on savings accounts, these offer comparatively higher returns, with a minimum tenure of around 12 months.
On the other hand, long-term investments are investments that can offer high returns after several years, typically five years or more – involving more market risks.
Be it via stocks, ETFs, mutual funds, etc. Investments in stocks earn quite high returns if patience is kept high (Of course, this cannot be guaranteed but you should assess your risk-taking capacity before thinking of investing in stocks).
Having a deeper understanding of the market movements so that the investor makes wiser financial decisions and when to sell the stocks, investing in stocks and securities requires a trusted financial partner, who can provide hassle-free features to open an online Demat and Trading Account.
Another long-term investment avenue for receiving higher returns is Equity Mutual Funds where the investor gets to pick from small, mid-cap, and large-cap equity mutual funds for the long term to achieve greater financial goals.
Ultimately, the short-term investment gives levy to the investor to achieve their financial goals within a short span and with lower risk (depending on which asset you pick), if the investor has a greater risk appetite, and wants higher returns, they can select a long-term investment avenue.
To further simplify, if the investor wants to preserve their capital and is happy with moderate returns then they may choose short-term investments but, with the expectation of a higher return, the investor may invest in long-term investment avenues.
(The author is Senior Vice President, at mastertrust)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Hong Kong Investment Bank’s 2,325% Surge Baffles Local Investors – BNN
(Bloomberg) — Another little-known Hong Kong-based financial services firm is mystifying investors with a dramatic price surge following its US listing.
Magic Empire Global Ltd., which provides underwriting and advisory services and has helped just one company go public since 2020, surged 2,325% in its debut session Friday in New York to a market capitalization larger than football club Manchester United Plc. Magic Empire is the seventh firm this year from Hong Kong or China to experience similarly surprising moves.
“This price level has clearly shown it is not sustainable,” said Ken Shih, head of wealth management in Greater China at Saxo Capital Markets HK Ltd., adding that without knowing who is doing the buying, it is hard to be definitive. “At this point, downside risk for investors clearly outweighs upside.”
Last week, Hong Kong financial services provider AMTD Digital Inc. briefly became bigger than Goldman Sachs Group Inc. after a 14,000% gain in less than a month. The moves are particularly notable at a time of otherwise muted IPO activity and with Chinese companies Alibaba Group Holding Ltd. and JD.com Inc. threatened with delisting if they fail to comply with American auditing standards.
Magic Empire reported revenue of $2.2 million in 2021, a 17% drop from a year earlier. The company’s operating entity, Giraffe Capital Ltd., completed just one IPO in 2020 and none last year “due to COVID-19 and volatile outlook of the Hong Kong capital market,” according to the prospectus. Friday’s price surge brought Magic Empire’s market capitalization to $1.9 billion.
“The wild swings are likely due to the concentrated ownership, which certainly raises red flags,” said Kakei Lam, fund investment officer at Metaverse Securities Ltd. “I don’t see a resemblance to the meme-stock mania, given the thin trading volume.”
Magic Empire’s chairman Gilbert Chan Wai-ho and chief executive officer Johnson Chen Sze-hon co-lead Giraffe Capital, which obtained a license to provide corporate finance services in 2017. The firm mostly works on IPOs on GEM, the small-cap exchange, and often engages other small local brokerages as underwriters, including KOALA Securities Ltd., HKMonkey.com and Yellow River Securities Ltd. Chan and Chen own most of Magic Empire, with a combined stake of about 63%. The firm had just nine employees as of December 2021, according to its prospectus.
Hong Kong’s Scandal-Plagued Small-Cap Exchange Left for Dead
About half of the companies Giraffe Capital has taken public jumped on the first day, some by as much as 125%. Seven are now trading 30% to 92% lower than IPO price and another has been delisted.
Magic Empire didn’t respond to an email request for comment and calls to the phone number listed on its website weren’t answered.
In the first half of this year, fundraising in the Hong Kong IPO market dropped 92%. With the tiny companies that make up their customer base under close regulatory watch, small- and mid-sized financial advisory firms like Giraffe Capital have had a particularly tough time.
In 2017 and 2021, the Securities and Futures Commission and the Hong Kong stock exchange issued two rounds of warnings about so-called ramp-and-dump schemes tied to small-cap IPOs. These schemes manipulate very thin trading volume to inflate prices, luring unwary investors before shares collapse.
The SFC declined to comment for this article, but has previously identified four typical features of problematic IPOs:
- Market capitalization barely meets the minimum threshold
- Price-to-earnings (P/E) ratio is very high given the firm’s fundamentals and the valuations of its peers
- Underwriting commissions or other listing expenses are unusually high
- Shareholding is highly concentrated in a limited number of shareholders
Magic Empire’s relatively modest revenue means it qualifies as an “emerging growth company” under American legislation, according to its prospectus. These firms enjoy reduced reporting requirements compared to larger US-listed public companies, with only two years of audited financial statements required and disclosure obligations regarding executive compensation pared back.
(Updates with Kakei Lam’s comments.)
©2022 Bloomberg L.P.
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