University of Technology (UTech) lecturer in banking, Dr. Neville Swaby, has pointed to the need for high-yielding investment schemes to organise themselves into a partnership of about 15 firms to facilitate their regulation and their own survival.

"(This) offers a way of pooling investment knowledge while, at the same time, lessening the anxiety level of each," Dr. Swaby, who is a licensed Wall Street investment banker, tells The Sunday Gleaner.

He is also recommending that the schemes institute a certification standard for potential investors to minimise their risks. The minimum investment, he suggests, should be $300,000 per investor, who should each have a net worth in excess of $2 million. In the case of institutions, they should have a net worth of at least $30 million.

Gradual regularisation

Dr. Swaby's recommendations appear to accord with findings by the Caribbean Policy Research Institute (CaPRI), based at the Mona campus of the University of the West Indies, which indicate that the investor base of the schemes is populated by middle-class professionals who are better able to absorb risks.

The UTech banking lecturer further recommends the gradual regularisation of th investment schemes while the legislative framework is expanded to cover their operations. "In other words, you are going to regulate them eventually, but as it is right now, make some provisions in the regulation to incorporate them and then later on bring them in the pool," he says.

Banks got time to regulate

In this regard, Dr. Swaby notes banks were afforded time in the early 1990s to get themselves regulated, and the same should be applied to investment schemes.

"Some banks' liabilities exceeded their assets ... They were allowed to operate for up to two years without anyone doing anything about it," he stated.

Dr. Swaby raps regulators for waiting too long to act on the rising unregulated schemes as well as for the method being used to get them to comply. He argues that the issuing of cease-and-desist orders is draconian and will only disrupt the current financial system.

The Financial Services Commission has so far issued cease-and-desist orders against three informal schemes - Lewfam Investment, Olint Corp. and Cash Plus Limited - putting investors on edge. On Christmas Eve, the court ruled that Olint's operation constituted a breach under the Securities Act. Cash Plus is to have its case heard on Wednesday.

gareth.manning@gleanerjm.com