Ethics and governance in the European Financial centers

Investor activist group Deminor said last Thursday it is to file a legal complaint against UBS, HSBC, and others for allegedly neglecting clients who invested in Madoff-related products.

The complaint will be filed before the end of the month in courts in Luxembourg and Ireland, where the funds through which some of the banks' clients invested are located: UBS in Luxembourg and HSBC for Ireland.

The banks involved acted as depository banks for the funds and did not verify the true nature of the investments.

As far as Luxembourg is concerned, because of the clear and pragmatic legal and regulatory framework that is promoted I do not think clients will be successful:
- when processing a client complaint, the regulator CSSF’s positions are not binding on the professionals (See CSSF annual report 2007 page 162)
- the penal liability of legal persons does not exist
- the civil jurisprudence in not in favour of the investor “from day to day”
- the guarantee of deposits is very low (limited to 20 000 EUR according to the Bankers’ association)

The consequence is that procedures initiated will be long and probably not successful.

The only way for investors that are victims of a lax legal and regulatory framework to be respected would be a payment by the Luxembourg State that would go later before the court for the refund in the legal and regulatory framework it enforced.