Published: Wednesday August 27, 2008
Barbados Central Bank governor Dr Marion Williams has said that fraudulent financial reporting and insider trading are signs of bad governance, but that excessive risk-taking and inappropriate incentive schemes should be added to the list.
Dr Williams added that today “poor risk-management practices, inappropriate incentive schemes and excessive risk-taking” can mislead investors and lead to a breakdown in the integrity of markets.
Her comments were made as she addressed a symposium titled Caribbean Impact, Global Reach at the 60th anniversary of the University of the West Indies (UWI), Mona Campus in Jamaica over the weekend.
She said these bad governance practices were made more serious by the “moral hazard of compensation tied to stock prices encouraging such manipulation.”
She said that if a corporation was confronted with more than one of these problems at the same time, “it could shake the foundation of or, as we have seen, even destroy the largest entities.”
According to Williams, “The hunt for yield by investment houses coupled with extraordinary reward systems can lead to huge profits and mislead investors about the strength of balance sheets.”
Speaking on the role of financial regulators, she said, “Financial entities which have a fiduciary responsibility to manage clients' funds should be licensed. The existence of unregulated financial entities which interact with the public can be problematic,” she added.
Source: Trinidad Guardian Newspapers