Hong Kong investors grapple with effects of Lehman collapse

Investors know that if it sounds too good to be true, then it probably is

The trend, however, is to empower people to effect their investments decisions themselves, almost invariably through the internet. Now, it may be that investors in Kenya need to be protected from their unfamiliarity with the market.

But it seems to me as though investor education, if there is any, should equally be concerned with protecting investors from unscrupulous middlemen, brokers and all sorts of self-seeking third parties. That certainly seems to be the issue in Hong Kong, and no doubt many other jurisdictions.

Regulators who should have scrutinised the increasingly innovative financial products on offer have defended themselves by claiming they ensured that the risks associated with minibonds were fully disclosed.

The public begs to differ, and believes that the de facto central bank seems to have slept on the job.

For the average investor who succumbed to what now looks like a case of mis-selling, it is not enough for the regulator to issue warnings that products are labelled properly, that is, as high-risk.

And herein lies the dilemma for a responsible regulator. What further role can they play to ensure that truly dangerous products are kept out of reach?

Regulators can refuse to authorise products if they jeopardise the financial system, or if they are fraudulent.

It makes you wonder, when regulatory authorities in supposedly advanced economies can barely keep up with the financial wizardry (and, sadly, disingenuity) emanating from bankers, brokers and what have you, what hope is there for investors in jurisdictions where the gatekeepers of the industry treat the whole business of investing as a game?

The way IPOs in Kenya have been handled, for example, does not augur well for stability when the effects of the global financial crisis begin to be felt.

Professor Ken Kamoche is an academic and a writer.