A LEGAL gap relating to the supervision of stockbroking activities has been in existence for over two years, an Oireachtas committee learned yesterday.

The Joint Oireachtas Committee on Economic Regulatory Affairs also heard from Irish Stock Exchange (ISE) chief executive Deirdre Somers that removing the current ban on short-selling is “not necessarily the right decision” for Ireland at this time.

Until November 1st, 2007, responsibility for supervising the conduct of stockbroking firms rested with the ISE.

However, the implementation of the EU markets in financial instruments directive (MiFID) saw this responsibility transferred to the Financial Regulator, Ms Somers told the committee.

“There is, however, a legal gap relating to the supervision of stockbroking activities prior to November 1st, 2007,” she said.

This lacuna arose because MiFID did not contain a “look-back” clause enabling the new regulatory body to investigate complaints relating to earlier periods.

According to Ms Somers, neither the ISE nor the Financial Regulator currently has investigative powers for the period prior to November 1st 2007, with the result that there is a significant legal gap.

“We are legally incapable of investigating such issues under our current rules,” ISE chairman Padraic O’Connor explained.

Mr O’Connor suggested that the Financial Regulator is the appropriate body to carry out investigations for that period.

He further suggested that MiFID contains a specific provision which would give it the power to do so.

Another problem arising from the implementation of the EU directive affects “non-consumers”, such as credit unions, which wish to make a complaint about a stockbroking firm.

The Financial Services Ombudsman now handles complaints by consumers, but the complaints procedure for non-consumers was effectively abolished post-MiFID.

The only recourse now available to this category of customer is to take expensive legal action and seek redress through the courts.