Pension fund trustees in danger

THE trustees of Irish pension funds could be in breach of their fiduciary responsibilities, if they permit the funds they oversee to hold billions of euro in equity investments in electronic form, it emerged last night.

Fine Gael TD and lawyer Jim O’Keeffe said the difficulties for all trustees of funds with assets invested in shares arises from a High Court judgement handed down by Mr Justice Roderick Murphy.

He ruled that shares held in trust for individuals by liquidated stockbroker W&R Morrogh can be sold to pay some of the €3 million plus cost of receiver Tom Grace of PricewaterhouseCoopers.

“This is a very serious issue for all trustees. They will have to consider their fiduciary responsibilities in the light of this judgement and if they are acting responsibly in allowing shares to be held in a manner which is manifestly insecure.

“The fact that shares held in trust can be plundered in a default situation has enormous implications not just for pension fund and other trustees but for all stockbrokers and requires an immediate change in the law.

“As things stand, trustees are acting irresponsibly if they do not insist on having paper share certificates for all investments. I am all in favour of holding shares electronically as it enables swift transactions, but the law simply has to be changed to protect these shares from being grabbed.”

Irish Financial Services Regulatory Authority prudential director Patrick Neary has already said, in the wake of the Morrogh judgement, the only way to hold shares securely in to have paper certificates.

“If you want absolute security you should get your share certificate and put them under the mattress. But you have to balance things out; if you want to trade in those shares, then you will have difficulties,” he said, days after Mr Justice Murphy made his ruling.

Mr O’Keeffe said the levels of compensation payable under the Investor Compensation Act, 1998 need to be increased dramatically to a minimum of €1 million.

Compensation payable from the Investor Compensation Fund, financed by the stockbroking and financial services community, is fixed under the Investor Compensation Act at the lesser of 90% of the loss incurred or €20,000.

Mr O’Keeffe said that he comes from the much maligned legal profession where no limits have been placed on the level of compensation that can be paid to clients from the solicitors compensation fund.

“I see no reason why there should be any limits on the level of compensation payable in the stockbroking world. Investors need to be protected, we are not talking about protecting fat cats here, as there are thousands of ordinary investors who now hold shares,” he said.