HOW PECULIAR that the Cyprus Securities and Exchange Commission (CySEC) decided to slap big fines on directors and executives of Laiki Bank and Bank of Cyprus over the publishing of misleading information with regard to their heavy investment in Greek government bonds in 2009 and 2010. The write-down of the Greek debt took place in October 2011, Laiki Bank had to be bailed out by the state in May 2012 and a month later BoC announced that it would require state assistance to meet the new capital requirements imposed by the European Central Bank.
There was obviously something wrong, so why did it take CySEC another two years to fine the banks, their directors and executives? What had the Commission been doing in 2013? The violation of reporting requirements to the stock exchange, the publishing of misleading and incomplete prospectuses and the misreporting of assets in 2010 and 2011 – among the reasons given for the fines imposed – were evident last year, so why had it taken CySEC so long to investigate the matter and impose the fines?
The chairman of the House ethics committee, Demetris Syllouris, felt the Commission was spurred into action because of his committee’s investigation into the banking collapse. It apparently found the courage to punish the bankers because of the example set by Syllouris’ committee. Others, including Andreas Vgenopoulos, have claimed, not very convincingly, that CySEC was doing a favour to AKEL, reinforcing the party’s view that the economy’s problems were caused by the banking sector and not the Christofias government.
A more plausible explanation was that CySEC was pandering to public opinion, punishing the bankers for mismanagement, just as people had been demanding. We do not know whether the fines, which in total were in excess of €7 million, were legally justified. This would be decided by the courts as everyone is set to appeal against the administrative sanctions imposed. As one of the lawyers defending some of the people fined said, the banks’ prospectuses about the bonds had been approved by CySEC. In its defence, the Commission argued that it could not have known that the banks withheld information.
This admission highlights the main problem. CySEC had not been exercising its supervisory responsibilities very effectively. We could only conclude that its investigation of bank prospectuses, before giving its approval, was not very rigorous. A supervisory body like CySEC, in theory, exists to protect investors and prevent directors and executives of public companies from misleading the public. In this respect the Commission failed spectacularly. Carrying out an investigation and imposing fines after the damage had been done is, in effect a public admission of this failure.