Closing Bloxham

 

THE CLOSURE of Bloxham, the country’s oldest stockbroking firm, following an investigation by the Central Bank, prompts two reactions.

First, relief that no client money is at risk in the financial loss the firm has sustained. Second, alarm that yet another financial scandal has occurred to tarnish further the image of Ireland’s financial services sector. That said, the Central Bank’s rigorous use of its increased power of regulatory oversight is to be commended. This has enabled the bank, as financial regulator, to acquire detailed information about aspects of Bloxham’s business operation, which may well have prevented an even more serious crisis from developing later. For that at least, we can be grateful.

Over a decade ago, the sudden collapse of W&R Morrogh, a Cork stockbroker, following a multimillion euro fraud carried out by a single employee, saw the firm’s clients suffer huge losses – for which they have received minimal compensation. Last year Custom House Capital, an investment company with 1,500 clients – institutional investors and high net-worth individuals – was placed in liquidation by the High Court. Mr Justice Gerard Hogan, in reaching his decision, said the Central Bank inspectors appointed to investigate the company had found “systemic abuse of client funds for improper purposes”.

In recent years the Central Bank has greatly intensified its scrutiny of the operations of stockbroking companies. Since 2010 the financial regulator has found that four of the country’s leading brokerages have failed to report transactions in the prescribed manner, and have been heavily fined for their failure. In the case of Bloxham, its income, it is alleged, was overstated for a number of years. The overstatement has left Bloxham without sufficient capital to continue trading as a regulated stockbroker. Once again this depressing saga revives some familiar questions from the banking crisis. How did the system of internal financial controls that operated within Bloxham not spot these alleged irregularities much sooner? Likewise, how well did the company’s external auditor, Deloitte & Touche, in auditing the firm’s annual accounts, do its job?

What is clear is the Central Bank’s determination – as financial regulator and effective enforcer – to ensure that investment firms authorised to operate in Ireland obey the rules that they have agreed to accept. It is the minimum reassurance that investors expect, and one on which the financial regulator is right to insist.

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