Investment professionals world-wide are faced with challenging times. The industry has been rocked by numerous scandals, and investor faith in the integrity and proper functioning of the financial markets as a whole has been seriously undermined. In Europe, the conflicts of interest of financial analysts have come under intense scrutiny and the new MAD and ISD regulations are soon to come into effect. Currently, the ISD and the MAD deal with financial analysis, research and investment banking.

EU members will be obliged to incorporate MAD into their national legislation by October 2004. A European passport for financial analysts similar to the proposed passport for investment advisers under the ISD would guarantee that these national regulations do not create additional bureaucratic and economic hurdles to cross-border securities analysis. Such a passport could help harmonise the regulations guiding the professional qualification of and ethical standards for EU analysts. By saving regulators and market participants the additional expenditure needed to fulfil the different national regulations, the EU analyst passport would be an efficient cost-reduction measure.

Important as these regulations are, it is the quality of the investment professionals themselves that will be the deciding factor in their effectiveness. Only sound qualification courses backed by ongoing training for all capital market experts can enhance a truly professional advisory service and corresponding investor protection in a transparent market.

IOSCO's core suggestions, as mentioned in the IOSCO Statement of Principles for Addressing Sell-Side Securities Analyst Conflicts of Interest, have already been implemented in Europe by the Market Abuse Directive. In addition, the measures recommended by IOSCO with regard to integrity and qualification of financial analysts underline the long standing activities of EFFAS. Among other things, IOSCO requires analysts to take periodic examinations designed to test analysts' knowledge of their legal and ethical duties.

René Willemsen

 

This coincides with the structure of the CIIA designation that EFFAS participates in: The CIIA is the only professional designation world-wide with national, regional and global content. This is of key importance not only for European professionals, but for the professionals from other continents, who must be able to combine the latest international knowledge with local expertise. The examinations are available in a range of languages.

 

Integration of European markets requires training that will take into account the diversity of the different financial environments. Europe might develop an integrated market, but it is not uniform. Small and Medium Enterprises (SME's) especially operate in an environment which is still characterised by national and regional structures.

 

The skills of investment professionals who are key to the purely knowledge-based finance industry therefore have to reflect the local markets that they are active in. Their high quality expertise generates added value. Even more important, by eliminating deficits in knowledge and skills, they reduce risks that can cause enormous damage.

 

The CIIA is tailor-made to meet these demands and it has made substantial progress in Europe.

 

Regardless of whether financial analysis or investment research will be regulated as a core business under the ISD or not, EFFAS considers it necessary to subject analysts to training requirements with proper examinations. This is also the basis for the protection of the professional title of financial analyst. Training and examinations must encompass training material which takes into account global, regional and national requirements for the areas covered by a registered or accredited analyst.

 

Dr René Th. H. Willemsen
EFFAS representative in the ACIIA Council