THE RECENT scandal of the missing £9.2 million from the pension fund of the Electricity Authority (EAC) and the subsequent investigation of financial company Suphire has rocked the investment world and shaken the retirement dreams of employees across the market.
Head of the supervisory body of the Cyprus Stock Exchange, Marios Clerides, says the safeguards exist to protect investors, but when a person effectively takes full charge of the running of a management company, the safeguards begin to erode.
“There are safety nets for the investment of pension funds but there is no watchdog monitoring pension funds. The EU is now harmonising rules regarding pension funds and the investment processes that have to be followed,” said the head of the Securities and Exchange Commission (SEC).
In fact, pension funds, because of their size, are considered institutional investors, and as such, given less protection than the average small investor.
“If a company collapses, a small investor who paid up to 20,000 euros can claim the money back from the Compensation Investment Board, which exists in Cyprus. Anyone who invests over that amount is considered one of the big boys and can look after themselves,” said Clerides.
Regarding the collapse of a pension fund, or a gaping hole in its portfolio, like that of the EAC, a series of events has to take place before something like this can happen, explained Clerides.
“There are certain safeguards. A company providing financial services must have an internal audit. Chinese walls between those who administer the portfolio and the back office (accounts) must exist to provide a separation of information and functions.
“This collapses when one person takes all the decisions, as Nick Leeson did with Barings Bank, which collapsed in 1995. He had control of the front and back office,” he said.
“The built-in safety net does not work when the safety valves are tampered with. When you get a dominant personality doing what he wants in a company, bulldozing through the board and controls, it is very difficult to spot this on paper. The separation of powers still exist on paper. For instance, in none of the reports did Yiannos Andronikou (principal shareholder of Suphire) appear as fund manager.”
Regarding the case of Suphire, Clerides said the personal guarantee given by Rea Andronicou to EAC for £9.5 million would depend on the solvency of her finances.
However, the return of the missing millions in general depends upon the solvency of the company and its directors, something which the EAC will soon discover as it seeks to recoup the money.
“Our job is to investigate whether the company has used clients’ assets for their own account. Now we are looking into all Suphire’s client accounts. If violations are found, the most we can do is fine and close the company.”
Asked how the SEC would go about investigating, Clerides said: “It’s very complicated but the good thing about accounting is that it leaves a trail, and we can follow each and every transaction. But it takes time.”
