Groups set to probe Morrogh collapse

FINANCE Minister Charlie McCreevy has established two working groups to examine the collapse of stockbroking firm W&R Morrogh, three years after the firm collapsed.

As much as 16 million in shares and cash held by the Cork firm remains tied up in a legal and receivership process which could eat up to 35% of the funds owed to Morrogh investors.

Yesterday, Mr McCreevy disclosed the terms of reference and the membership of the two working groups established to investigate the fallout. The groups will make recommendations to “ensure similar occurrences will not take place again”.

One working group, the Compensation Funding Aspects, has been set up to examine and make recommendations on the structure of compensation schemes for clients of the financial services industry. The other, on Legislative and Financial Regulation Aspects, will examine and make recommendations on any changes, if any, required in the regulatory and legislative framework arising from the experience of the failure.

Among the aspects to be investigated by the Compensation Group will be:

The impact and sustainability of the existing unlimited liability of contributory firms in terms of funding investor compensation.

The manner by which receiver and liquidator costs are funded.

Legislative amendments that could be implemented to expedite compensation payments to clients.

Legislative provisions governing the role of the regulatory authorities with regard to investor compensation schemes.

Compensation arrangements for clients of insurers and unit trusts.

Meanwhile, the Legislative and Financial Group will examine:

Issues of reputation or Reputational or integrity issues that arise in relation to electronically held shares.

The treatment of client assets in situations where investment firms go into liquidation or receivership.

Legislative amendments that could be implemented to ensure the timely payment or return of assets to clients when investment companies fail.

The legal position with regard to client funds being used, in effect, to finance legal cases arising from the need to clarify any uncertainties in the law.

Whether there is a need for statutory defined distribution rules for client assets in the event of an investment firm defaulting.

The two working groups will have separate, but overlapping, members and will include representatives from the Departments of Finance, Enterprise, Trade & Employment and the Taoiseach’s office. A range of consumer groups and professional bodies will also be involved, including the Stock Exchange, plus insurers’ and brokers’ groups.