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[The Wrap] Where were the clues in the Kloogh case?

The Serious Fraud Office raid on an Authorised Financial Adviser's office in Dunedin just over a week ago raises questions about the effectiveness of the regulatory environment.

Friday, May 31st 2019, 7:29PM

Just over a week ago the SFO, with the assistance of the Financial Markets Authority, raided the offices of authorised financial adviser Barry Kloogh

While details of the case are yet to be revealed and no charges have yet been laid against Kloogh there is a developing story that this has more than a whiff of concern that could involve some sort of misappropriation of funds.

The fact that the SFO is involved means that this is more than an AFA breaching the Professional Code of Conduct. If it was the latter then the FMA would be in charge and the matter would, in all likelihood, end up at the Financial Advisers Disciplinary Committee.

Secondly, the SFO only gets involved if the issues are complex and/or large.

The question is how could this have happened in the current environment?

Since the Financial Advisers Act came into effect the FMA has been tasked with monitoring the 1998 AFAs currently operating in the market place. It's done this through a variety of methods and in the early days the regulator had a group tasked with monitoring what was going on in the market place.

Many AFAs had visits from the FMA, and the FMA has told us many times before that it relies on doing risk assessments and following up tips as part of its regime.

Added to that AFAs have to file various reports each year to the regulator.

If this case ends up resembling the Ross Asset Management affair - there is no evidence presented that is the case yet, rather just a lot of information which points in that direction - then the only conclusion one can draw is that the regulatory regime doesn't work.

It won't work and it won't necessarily stop fraudulent behaviour in the market place. One just has to. look across to Australia to see that is the case.

It's easy to point the finger at the regulator, but that is not the purpose of this Opinion piece. Rather it points to how added regulatory and compliance regimes are unlikely to stop the worst behaviour in the market place.

The second observation is around the seemingless naivety of some investors. We have seen this before, from some of the information coming through it maybe occurring again.

An interesting point made the other day is that when an adviser builds a "trusted adviser" status with clients then the clients don't necessarily ask the questions they should be seeking answers to.

Tags: Opinion

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