How can a regulator operate effectively if it is prohibited from making any public statements or comments on the companies it regulates?
Is it good enough that when the Central Bank tells a stockbroker to stop taking on new share dealing clients, that information is not released to the public until two weeks later? Would it not be more effective if the regulator was required to issue a public notice when it issues directives that effect consumers?
It appears that the Central Bank can only issue a statement if the firm concerned gives its express agreement to this course of action. But in a curious twist, if the firm agrees to, or decides to, issue a statement the Central Bank gets to clear or approve that statement.
The Central Bank says that under section 16 of the Central Bank Act 1989 it is prohibited from making any public comment or giving any information to third parties on any of the firms it supervises. For this reason, a query put to the Bank about one of the firms it regulates will always get a "no comment" answer.
But the situation is not satisfactory for consumers of financial services. No customer money was at risk when BCP Stockbrokers was told to stop taking new share-dealing clients on April 7th.
But it is far from inconceivable that there could be situations where customer interests are at risk and the Central Bank cannot let people know that there are problems at a firm.
Under the current ground rules with the Bank unable to comment, firms who want to put a favourable "spin" on information about their own situation will not be contradicted.
However the Bank does not appear to be pressing for changes in the legislation. While it says that the legal constraints work to its disadvantage at times in terms of the public perception of its effectiveness as a regulator, it feels that any change would damage the culture of client-regulator confidentiality which it considers very important.
But surely giving the Central Bank the right to issue statements in matters of public interest could only strengthen its hand as a regulator and could only damage the confidentiality culture if the Bank acted irresponsibly?
