FSC duty bound not to leave things in limbo

Rumblings in the Global Business Sector

We were informed yesterday that the CEO of Kross Border, a local management company operating in the global business sector, would have instituted legal proceedings in damages against a foreign investor for having made damaging allegations against the management company’s handling of its business. It is the right of anyone who feels that an attempt is being made to sully its reputation to take action and seek repairs.

Generally however, what happens to global business activities attracts international attention – especially when negative perceptions are aroused publicly. The concern is not only with the client private enterprise alone. The reputation of the jurisdiction is also at stake from matters, such as whether the necessary due diligence on company shareholders was carried out and whether the provenance of funds being used for carrying out investment was tested out and found to be clean and untainted by any malpractice and free from illegalities. The management company is also held to see to it that meetings are conducted and decisions taken recorded in compliance with local and international company regulations, as appropriate. This is why it is extremely important to handle the sector with the utmost care and attention, creating no doubt in anybody’s mind – whether internally in Mauritius or outside – that things would have been left to chance.

It is important to raise regulations and compliance to the highest international standards – and we believe this is what the Financial Services Commission has been doing — because the global business sector is particularly prone to serious reputational risks at times due to unfounded allegations. This is a good enough reason for having left the regulatory governance of this highly sensitive sector to a specialised public body, notably the FSC. We should not be seen to be aping other countries which have been running financial regulation on a unified platform, if we are mindful of the risks involved in putting all the eggs in one basket.

To the credit of the Mauritius jurisdiction, it must be said that there have been no particular problems with the hundreds of MCs which the FSC has been regulating since 2000. The regulatory body has been proactive to set down norms for the good conduct of such institutions. It has also taken on powers to deal effectively with any MC and its client companies that would not abide by the rules laid down on the extent of their duties and responsibilities. Given this and the fact that the FSC has not taken any regulatory action against Kross Border, notwithstanding the allegations being publicly made by one of the foreign investors in the case in question, one could safely assume that the management company has satisfied the FSC that it has been doing all the duties it has been enjoined to do by the regulator.

In this case, the quarrel in the present case of the foreign investor has been ongoing since August 2012 when the Chief Executive of the FSC would have had a meeting in person with him. This has been followed by a further correspondence from him to the FSC. Allegedly, the letters have remained unanswered. If that were truly the case, would this suggest that the regulator would have concluded that it did not have a matter of ‘public interest’ to look into from the regulatory standpoint?

The problem is that the way the situation is publicly portrayed it is being made out to appear as if the regulator has not assumed its responsibilities. Granted that the regulator does not have a duty to defend itself against all sorts of charges – especially charges having nothing to do with its domain of responsibilities — could it nevertheless look into what is preventing all the parties to what is otherwise a private contract among investors from fulfilling each other’s expectations?

The FSC may well feel that the matters under dispute are of a private nature and of no direct concern to it as a regulator, but would it not be for the good of the jurisdiction not to allow this matter to stretch out, as it is doing, into the public domain? Is there not a duty to do some amount of fire fighting if only to quell allegations of supposed “round-tripping”?

The FSC may want to employ more fully and intelligently its communication cell to scotch the allegations being made, especially when someone is coming up to tell the institution the areas of its responsibility in the matter in question. It is highly important to allay apprehensions about possible misuse of our jurisdiction in defiance of laid down rules e.g., on the provenance of funds, as it is being implied by what has come out in public. Some affirmative action to stem the tide of adverse publicity being made at the level of the jurisdiction would not be out of place. Nobody should think that a jurisdiction such as Singapore would have left issues in limbo against such wild allegations being made, including an accusation that the FSC would not be handling its responsibilities.

* Published in print edition on 18 October 2013

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