Views on improving the integrity of global capital markets
10 September 2014

CFA Institute: Strengthen Regulations to Enforce Investor Rights in Cases of Abuse

In the 2014 CFA Institute Global Market Sentiment Survey, CFA Institute members identified the misselling of financial products and services as a top concern, demanding better governance and enforcement of existing laws and regulations.

Against this backdrop, CFA Institute has released a report, Redress in Retail Investment Markets, which explores best practices and regulatory frameworks in Europe, Asia, and the Americas available to retail investors and users of financial services to enforce their rights in cases of malpractice or misconduct. It also proposes policy recommendations to improve investors’ ability to seek redress. (View a video interview featuring report author Mirzha de Manuel Aramendía, director of capital markets policy at CFA Institute.)

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Globally, the Organisation for Economic Co-operation and Development (OECD) and G20 principles on complaint-handling and dispute resolution set the benchmark for the industry and regulators. The CFA Institute report explores their application in different contexts, including the European Union’s recent legislation on alternative dispute resolution (ADR).

While some jurisdictions have pioneered the introduction of effective redress mechanisms in retail financial markets, others lag behind. Unfortunately some key principles, such as the accessibility, independence, adequacy, and accountability of ADR schemes, are not always respected.

The report’s recommendations are aimed at improving the traditional approach to supervision, which focuses on punishing misconduct in ways that do not benefit directly the victims of misconduct.

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About the Author(s)
Mirzha de Manuel Aramendía

Mirzha de Manuel Aramendía is director of capital markets policy at CFA Institute. He is responsible for developing capital markets policy in the Europe, Middle East, and Africa (EMEA) region through education and research, developing policy papers, research projects, and regulatory consultations.

3 thoughts on “CFA Institute: Strengthen Regulations to Enforce Investor Rights in Cases of Abuse”

  1. Lloyd Clucas says:

    Discussion of civil redress is fine. But all such discussion completely misses the bigger issues involved.

    My beloved CFA Institute completely failed to advocate for or support the desperately-needed criminal prosecution of the bad guys in this last financial cycle. Most of these folks remain in C-Suite positions at all the major Wall St. investment banks. No matter what the CFA goes on about today, they cannot claim any moral high ground on these issues. I really wish they could. They cannot. I have written to them. Unfortunately the responses were predictable.

    The Administration in Washington turned a blind eye as well. Instead, they turned an upturned palm behind. Wall St knows how to treat such palms. Statutes of Limitation ran

    Just to be clear, we are talking about mortgage fraud, theft by fraud, and securities fraud.

    Where are the RICO laws when we need them? Unfortunately, wrecked by prosecutorial abuse of them.

    Regulation doesn’t work. Civil redress is very difficult. Criminal prosecution can and will work. Imagine the salutary effect of CEO’s asserting they are doing “God’s work” doing 25-to-Life for the massively widespread fraud that nearly broke the industrialized world.

    The recently-resigned U.S. AG failed totally to even attempt the basics. He was apparently too busy working on his boss’s political issues.

    We need a lot more than weak tea from out professional organization. There are plenty of U.S. Attorneys who know how to fight organized crime. What is required is support for them – administratively and professionally.

  2. Mirzha de Manuel Aramendía says:

    Thank you for your comments. We believe that effective redress mechanisms are essential for investors to have confidence in the integrity of capital markets, and are perhaps more optimistic than you are as to the efficacy of paying attention to the strengths and weaknesses of existing redress systems that are available to investors. Your points regarding the deterrence value of criminal prosecutions are well taken, although responsibility for effective prosecution goes well beyond the authority and resources of a member association like CFA Institute. You may be interested in the excellent Propublica piece that appeared earlier this year that analyzed some of the difficulties in with successful prosecutions in the US ( .

    1. Lloyd Clucas says:

      M de M A:

      Thank you for your reply. Civil redress is always important for the aggrieved. In the situations we are talking about, it is, however, of little help in preventing on-going or future crimes.

      “Effective” is the key word we have both used, I think. Regulation certainly is not. Criminal prosecution of genuine crimes is. Your parting observation is that prosecutions are difficult. I hope that was not an effort to excuse anyone for failing to mount a serious effort.

      Preventing crime is always difficult. Effectively prosecuting a “mafia” is even more so. In the last cycle there were carloads of crimes committed at various classes of financial institutions. Virtually no effort was made to take down the “kingpins” at any of them. The way I count it, there were 1 ½ serious prosecutions of C-suites executives.

      Centuries ago, I was an attorney for many years in Chicago. Though a corporate attorney, I had some modest experience in preparing effective prosecutions. I fully understand the difficulties these criminal prosecutions involve. They are not insurmountable.

      With respect to this last financial cycle, we are talking mortgage fraud, theft by fraud, and securities fraud. Wanting to confirm my thoughts on dealing with such matters, I looked up a former U.S. Attorney who worked our penultimate financial fraud cycle.

      He effectively did these sorts of federal criminal prosecutions in NYC. Over lunch, he confirmed how these cases are done. He confirmed that they could have been done in this recent cycle, too. He indicated the talent to do it was in place. It just wasn’t being used. He has spoken and written publically about it. He reports the same sort of morally-vacuous reaction I find.

      He was as appalled as I was that the Administration was turning an obvious blind eye to the biggest set of financial crimes in American history. We discussed the irresponsibility of having let the statute of limitations run on so many of the villains. That lunch was in the summer of 2010. Federal judge Jed Rackoff has made similar, though belated, observations since.

      The “difficulties” of which you speak usually involve lack of guts, lack of willingness to apply the necessary available resources, occasionally the inability to tell right from wrong, and the unwillingness of politicians to give up political contributions from the bad guys. An old story. Nothing new.

      Italy has had the toughest time with such in recent decades. It took judges and prosecutors with real guts to get the job done. Dying is rather more significant than simply losing some political contributions.

      The relevant Americans for our past financial cycle were, and are, simply avaricious and morally weak. The resources were, and are, there. They were not used. Perhaps the feeble excuse was their being detailed to the security theatre that is so ineffective, costly, and destructive of American civil liberties?

      I agree with you that ProPublica has done some good work. And I’d add that Planet Money, This American Life, and Rolling Stone have published good pieces on the last financial disaster. Notably absent has been all of the mainstream business press. And The CFA Institute. I fully understand the political and financial issues involved for the former and the latter.

      I disagree with you when you say that…

      “…responsibility for effective prosecution goes well beyond the authority and resources of a member association like CFA Institute.”

      Not really. “Authority”? How about moral authority? “Responsibility”? It is a difficult word. To paraphrase someone, “For tyranny to prevail it is sufficient for good men to do nothing.” If my beloved CFA Institute cannot stand up for enforcing basic criminal law, what can it really do that matters more? That voice was desperately needed. It was not, and is not, heard.

      Instead, we get government extorting shareholders for vast sums while ignoring the very criminals running the firms who committed the crimes for which the shareholders’ assets are being drained by that government. And silence from The CFA Institute. I’m professionally ashamed. You?

      — Lloyd L. Clucas, JD, CFA

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