Mr. Gerard Colaco: Some time back you had sent me a consultation paper on minimum common standards for financial advisers and financial education. A committee on investor awareness and protection had been constituted by the Government of India to go into this subject. I just finished reading the paper, because I had quite a huge reading backlog.
The report is unlike the most other reports, because it is well written. But the contents of the report are nothing new and efforts in this area have been made even in the advanced countries, without much success.
Where the individual investor is concerned, if greed exceeds common sense and fear, no amount of investor protection, financial literacy or investor education will be of any use. On the other hand, if common sense and an awareness of risk are more than greed, such an investor will invest money sensibly and manage his risk, even if there are no investor protection and financial literacy initiatives by the government of regulatory authorities.
In such an environment, compliance officers are not working towards a desired outcome for the customer, but to outwit regulators. Once a regulatory loophole is discovered, it becomes a ract to the bottom, with rest of the industry following, as the report lucidly explains”.
When we come to financial intermediaries, the ethical among them will advice and act in the interest of the investor at all times, regardless of financial regulations or financial rewards. The unethical advisers will continue unethical practices taking care to see that they pay lip service to client interests by following or pretending to follow the minimum required regulations.
As the report rightly says, all regulations, rules and compliance, especially when drafted by bureaucrats, falls under the “checklist” approach to staying within the letter of the law, rather than embracing the spirit of the law. Checklist compliance harms customers, as there may be no case of regulatory violation, yet there may be unethical selling, improper advice and malpractice.
In such an environment, compliance officers are not working towards a desired outcome for the customer, but to outwit regulators. Once a regulatory loophole is discovered, it becomes a race to the bottom, with the rest of the industry following, as the report lucidly explains.