The City of London is at risk of serious reputational damage owing to the FSA’s lack of power in regulating carbon trading, says the Chartered Institute for Securities & Investment (CISI).
In the June edition of its member magazine Securities & Investment Review, the CISI says the carbon trading industry is opening a window on potential problems in the wholesale markets in the form of lack of proper management of carbon trading back offices, and of cyber-crime.
Bulletin boards and internet chat rooms offer carbon trading and other ‘green’ investments that promise balm to worthy consciences, keen to help prevent global warming and save humanity, while offering annualised returns of up to 500%.
Unfortunately for the investor many of these schemes are not the ‘certified’ emission reductions that are professionally traded around the world.
In addition the UK’s FSA has no power in this area as like other commodities, carbon trading goes unregulated across most of the globe. Only if the scheme is presented as a collective investment does the FSA have any power – and most operators are sharper than this.
“Carbon credits can be sold and traded legitimately and there are many reputable firms operating in the sector. However, the FSA has voiced concerns about the increasing number of firms using dubious, high-pressure sales tactics and targeting vulnerable consumers.
“Retail investors have a reasonable right to expect that these firms are legitimate and answerable to a regulator. Regulators in Britain and elsewhere need the power to stop this mis selling,”says Simon Culhane, Chartered FCSI and CISI CEO. “This problem has rumbled on for some time. The moment for action is now.”
As a first step, the CISI has provided a special page on its web site – at CISI.org/carbon – for worried retail investors. The page also links to useful background for professional advisers.
Even the proper, certificated market has become a magnet for thieves, says the CISI. Last year cybercrooks managed to plunder €60m in certified credits when their owners’, and the carbon regulators’, backs were turned. Over a million credits were stolen electronically from the Czech registry operator, for instance, when its building was evacuated due to a bomb scare.
“These thefts are part of an alarming pattern of sloppy controls in an important market. The professionalism that drives mainstream markets should be brought to bear on this fast-growing area,” says Mr Culhane.