International Capital Market Law and Regulation - Assignment Example

Running Head: INTERNATIONAL CAPITAL MARKET LAW AND REGULATIO International Capital Market Law and Regulation Name Institution Date Question 1 The controversy over the regulation of corporate form is important just like seventy five years ago when the separation of control from ownership was first outlined. It is essential to understand the political influence in the scope, efficacy and governance of systems of corporate governance. According to O'Brien (2007), it is important to establish the ethical aspects which will in turn act to support the policy responses. Policy responses alone are doomed to be incapacitated. In many situations the aspect of conflict of interest will always come up. Robust solution to corporate non-compliance is to acknowledge the need for interaction between the law, societal norms and corporate ethics. The strategy can be successful if it is accompanied by a wider coordination at each level of enforcement pyramid (Wooler, 2007). Corporate governance that is effective is anticipated on strategic goals delivery, compliance that is mediated with ethical and obligation aspiration. The innovative regulatory strategies deployment brings forth the coming up of conceptual framework that is new to deal with defiance in organizations. The framework permits the regulatory agency scope that is considerable to enforce, monitor and design internal programs of corporate compliance. The suggestion that the re-conceptualization gives excessive discretion to regulators, blurs the separation ofprivate and public discourse and threatens competitiveness economically can be dealt with technically (Griffiths, 2001). Regulatory authority and legitimacy, it is explained, would only be restored if strategies of enforcement are circumscribed within parameters that are clearly defined. While regulators accountability requirement is appropriate, there is a possibility that is inevitable that enunciated parameters can be transacted around. The possible risk of technical gaming can however be minimized. This calls for regulatory agency to put together or merge less formal approaches with prosecutorial stance that is assertive to give guidance to behavioral change. The basic foundation is to come up with a corporate accountability standard that is common. Benchmarking relative and absolute performance on this standard gives self-regulation effectiveness and credibility. According to Wooler (2007), it narrows the justification and space for contestation at every stage of the pyramid of enforcement by the resolving of incommensurability between conceptions that are different in compliance function and form. For the attainment of this objective it is essential to separate the complex networks governing the political maintenance and construction of systems of corporate governance. Corporate accountability conceptions are emaciated without ethical considerations making them to be weak in application and justification. Managing conflicts of interest that are legally permissible needs self-regulating devotion to generic core values. These are tangible expression given in the codes of conduct. The codes have been designed to enhance awareness, specify what adds up to conduct that is prohibited and articulate behavioral standards that are expected (O'Brien, 2007). The codes are found within a greater within regulatory and legal framework that embodies ethical principles. The recent rash in scandals concerning financial reporting highlighted great deficiencies with this kind of control model. It has also led to changes in the dynamics of capital governance temporarily. In order to ensure restoration of confidence responsibility was redefined to take care of an ethical dimension that is explicit. The implementation process necessarily went beyond corporation application. It partially reconfigured partially the role of gatekeepers from external. The anticipated introduction of enhanced stringent controls of conflicts of interest shows the implications of these global imperatives on both process of implementation and formulation. In line with its counterparts internationally, the Australia Securities and Investment Commission is looking for a goal that is more modest than eradication of conflict. The focus is limited to privileging prophylactic surveillance strategies, re-articulating principles that are broad and the clarification of the underlying rationale governing enforcement and compliance priorities. The literature points out that minority shareholders protection mechanism combined with legal certainty is able to facilitate growth of capital market. The problem only emanates on how these are enforced and set out. What is less important is the formal architecture governance of agencies enforcement but whether the regulator really applies the particular mechanisms. Codes of conduct are an important tool applied throughout the world to put in place standards for appropriate and ethical behavior in public administration. Many countries have incorporated provisions that are targeted into their laws, constitutions or public administration employee handbook and activities for training. Prevailing cultural, social, economical and political norms affect the degree to which conflicts, real or potential; are approached in the various countries. The existing norms also makes known what approaches-informal or formal-may prove to be most effective if applied. Many factors come into play as far as discretion is concerned. These comprises of staff ennui, internal strategic imperatives, and hostility or political support. The corporation purse should be determined and whether its governance is to be determined by private or public laws considerations. Wider regulatory policy and specific corporate governance reform agendas should have a reflection of ethic dimension. Corporate counsel should come up with strategies in order to transact compliance obligations that will include policed and internally devised codes of conduct. This approach can be applied with the reference to the imperative nature of corporation that revolves around profit maximization. The debate concerning the way to control the corporate form remains as unresolved and as vital as when the systematic problem concerning the ownership from control was initially articulated seventy five years ago. The private ownership rights are transferred to the collective that is invested with a distinct, if artificial, legal personality. The emphasis remains on the personality component as opposed to its artificiality. These bring about the social construction of the corporation. Regulators strive to facilitate innovation, depth and liquidity while reducing the transaction costs attributed to uncertain and incomplete legal framework. Auditing profession is faced structural problems of a similar and pressing magnitude. Responsibility to ensure compliance with ethical and professional practice rests in the first place with the audit firm itself through the Code of Ethics for Professional Accountants. The effectiveness of external adjudication of effectiveness rests initially, and not solely, within the disciplinary processes of the Accounting Professional and Ethical Standard Board, a controlled and industry-designed initiative. It is without delegated authority of ensuring the audit process is undertaken with due consideration of ethical requirements that are relevant. There is need for interaction between the law, societal norms and corporate ethics. Successful management and corporate power can not be solely attained through sufficient public resources and legal leverage without ethical consideration that will make elimination of conflicts of interests. Question 2 ‘Principle of Autonomy’ and why it is vitally important to Integrity of International Trade within the Documentary Credit System The role of the Principle of Autonomy is to give a provision for a legal bulwark between any underlying Contract between the Beneficiary and the Applicant and a Documentary Credit. As outlined by the Principle, the Documentary Credit is independent and separate from the underlying contract of sale or other transaction even in cases where the contract is referenced specifically in the Credit. Where a dispute arises between the parties in the underlying contract, the obligation to honor is unaffected and which is also inherent in the Credit. It has been agreed that suspicion of fraud is not sufficient for the bank not to honor payment or withhold payment. The UCP 600 has not rendered useless the principle of strict compliance; they have instead removed the possibility of rejection of documents for discrepancies that are inconsequential. The fact that actual fraud has to be proved is a huge burden in most jurisdictions. Complication in the Principle of Autonomy arises when detection of fraud is realized after the presenting of the complying documents but prior to the maturity date of the Documentary Credit and a bank as opposed to the issuing bank negotiating the Credit. Nominated or Negotiating banks will usually help their Beneficiary customers when in need of funds for financing the transaction or paying creditors for obligations arising pursuant to the transaction by advancement of funds at a discount. This is what is known as negotiation. The vitality of this principle is important to the integrity of international trade within the documentary credit system (Australian Law Reform Commission, 2002). The Principle of Autonomy has also been found not to be sufficient in ensuring payments in cases where the Documentary Credit is applied in financing the commission of act that is illegal, for instance, committing a financing misdemeanor or illegal goods shipment. Whether the illegality that is complained of is supervening or an existing event, it will automatically render the credit null and void. The level of illegality that will render the Documentary Credit void will absolutely be an issue to be decided upon basing on the facts by individual courts in the jurisdiction that is relevant. In the illegal of conduct absence nevertheless, the Principle of Autonomy was reinforced firmly in Hamzeh Malas and Sons v British Imex Industries Ltd whereby Jenkins LJ explained that a Letter of Credit that is confirmed ‘imposes on the banker an obligation that is absolute, to pay, regardless of dispute that may be existing between the parties..’. The disputes that are being referred to; are between the Beneficiary and the Applicant regarding the actual services and goods for which payment is being sought, for instance, warranty disputes concerning fitness for purpose. In the case of Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran, a letter of credit needed that the name of the buyer had to appear on the entire documents. One of the documents did not contain this and the English Court of Appeal rejected to ignore the discrepancies. With the introduction of UCP 600, the possibility of the documents rejection for inconsequential discrepancies, like that in Seaconsar case, will be reduced dramatically. The change is a crucial improvement. Apparently it will be less problematic for courts and banks to determine compliance in future (Zerk, 2006). The Principle of Autonomy consequently make sure that banks are maintaining a vivid separation between the Documentary of Credit and any other underlying contract and are not in any respect responsible for any warranty disputes concerning directly to services or goods being traded. The banks deal exclusively with documents and not concerned with performance sufficiency under the sale of contract or dispute resolution which may come up there under (Griffiths, 2001). Question 3 It is basic goal to all profit-driven business philosophy is the idea that firms will normally seek profit maximization for shareholders benefit. This point out to the notion that firms will rationally act and long-term strategies of wealth will be pursued in preference to short-term gains that lack market fundamentals that are sound. Many times in long-term investment philosophy defiance, risk taking that is excess will lead to spectacular collapses and the loss of large amounts of the funds from investors. The logic of long-term investment or return strategy will usually appear to be contrasting with actual corporate behavior (Tomasic et al., 2002) Mugasha (2003) argues that the public as a whole looks upon sound corporate governance for its interest’s protection. Strong governance is core to social welfare and economic welfare. Information and processes that are available publicly is what all stakeholders (employees, shareholders, creditors, customers and the public as a whole) utilize to be informed of actions of the company and consequently use the information for relevant decision-making. The premise is that both the information and the processes of the company are valid. In a democracy that is ideal, managers are agents of shareholders; bureaucrats are agents of politicians while politicians are agents of citizens (Murphy & Willmott, 2010). When activists of institutions apply the pursuit of ‘long-term investment returns ‘to issues concerning corporate governance, they are accepting implicitly the model that; actions of management matter to performance; corporate governance outlines the framework in which the management acts; sound corporate governance aligns management actions with the desires of the owners, and, since the owners desire long-term investment returns maximization; the ultimate result is improvement of economic performance. In the absence of sound corporate governance, the principal-agent problem that is embedded in this logic implies that management will pursue its own goals (prestige and power enhancing acquisitions, large salaries, perquisites) to the detriment of the interests of the owners in maximization of wealth (Johnson & Reddy, 2011). The consequence is poor economic performance and long-term returns that are lower. Many elements of the philosophy are subject to regulatory measures to ensure compliance. The corporate management may get involved in unscrupulous means with the ultimate goal of making gains. Exploitation and bending of some of the sound corporate behavior may be witnessed. It is anticipated, and rightly so; that corporate governance matter least in markets that are highly competitive; managers who greatly make mistakes will be pushed out of business, it does not matter if the other means of accountability are weak (Mugasha, 2003). The objectives of regulation include promoting fairness and efficiency in the market (market integrity), investor protection, enhanced competition, and minimization of systematic risks. Many of the cases certainly that have been exposed demonstrate death of ethics in the financial and business community. A good example is when many companies collapsed in the wake of the economic crisis in 2008. As the management pursues long-term economic investment gains they should be in compliance with regulation requirements and the desires of the investors. The short term investment gains ca not be overlooked as they keep the company running from day to day. A balance should be made between good governance and long-term investment returns Siegel, 2006). Question 4 Executives are held in high esteem in regard to ethical performance by both the common law and the corporate framework. Directors, both non-executive and executive, are mandated to practice high levels of competence unprecedented in history of corporate. It is the perspective of many that performance expectations anticipated from the boards are costly, unrealistic and has the effect of crippling decision-making or retarding performance under the burden of due process. The boards may be entitled with the entire overall running of the company but there are other underlying issues that are beyond the control of the boards (Moens, 2001). Some of the mistakes that has plunged some companies into crisis have not directly emanated from the decisions of the board but the approval by the board of projected proposed by some experts within the company. Metz (2008) observes that the regulation of corporate governance limits the time of reaction by the board to a crisis or provided a constrained approach to a situation that would have been solved were it not for the many laid down rules and regulation concerning corporate governance. It is anticipated that the boards should most of the time focus on the long time goals of the company; this means that in the day to day running of the business or affairs of the company the board is not directly involved (Rezaee, 2007). In case of a problem is not the board to be blamed putting in mind that other people and departs in the organization are involved. Most individual decisions are made by relevant managers and the boards are mostly involved in development of strategic goals of every department and the organization as a whole. The boards are able to steer the companies to new heights if they are backed by the right delegation from every department of the organization. ACCA belief is that whereas codes of ethics will never stamp out greed, a principle-based code enhances business to use ethical muscle to make decisions for the long-term good of the organization (Mugasha, 2003). Continuous commitment to an ethical code, supported by disciplinary procedures and regular monitoring of adherence to the code, can assist an organization to negotiate an increasingly complex world. Directors are liable (unless exonerated by charter and statute provision) if they are found to be grossly negligent in the process. According to Agard (2010) directors are not protected by the Business Judgment Rule when making a business decision if they possess personal financial interests in the decisions or if they do not act independently-free of domination or any motive accept the merits of the corporate transaction. Independence may become a critical issue in derivative litigation or in transactions in situations where directors are alleged to be dominated by an interested party, for instance. A good example is the James Hardie case in Morley & Ors v ASIC, The court asked to consider whether the former directors and officers of James Hardie Industries Limited (JHIL) and James Hardie industries NV were unable in their duties to act with due care and diligence by not taking steps to ensure JHL complied with its obligations under the corporation Act 2001m (Cth) with respect to disclosures and other statements. In the Appeal, the high court overturned the findings of duty of care by the General Counsel and Joint Company Secretary in some aspects, but upheld findings of failure to advice. In so many aspects the board may not be directly involved. References O'Brien, J. (2007). Managing conflicts: The Sisyphean tragedy (and absurdity) of corporate governance and financial regulation reform. Australian Journal of Corporate Law/ (2007) 20 Aust Jnl of Corp Law No 3/Articles/Managing conflicts (2007) 20 Aust Jnl of Corp Law 317. Wooler, G. C. (2007). Legal and Practice Perspective on Documentary Credits under the UCP 600. Mugasha, A. (2003). The law of letters of credit and bank guarantees. Canberra: Federation Press. Moens, G. (2001). International Trade and Business Law Annual. New York: Routledge. Johnson, H. & Reddy, J. (2011). Q & A Commercial Law 2011-2012. London: Taylor & Francis. Agard, K.A. (2010). Leadership in Nonprofit Organizations: A Reference Handbook. New York: SAGE. Siegel, J.B. (2006). A desktop guide for nonprofit directors, officers, and advisors: avoiding trouble while doing good. California: John Wiley and Sons. Metz, T. (2008). Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm. California: John Wiley and Sons. Rezaee, Z. (2007). Corporate governance post-Sarbanes-Oxley: regulations, requirements, and integrated processes. California: John Wiley and Sons. Zerk, J.A. (2006). Multinationals and corporate social responsibility: limitations and opportunities in international law. Cambridge: Cambridge University Press. Plessis, D. J. & Lyon, G. (2005). The Law of Insider Trading in Australia. Canberra: Federation Press. Australian Law Reform Commission (2002). Principled regulation: report : federal civil & administrative penalties in Australia. Melbourne: Australian Law Reform Commission. Murphy, J.D. & Willmott, H. (2010). Organization theory and design. New Jersey: Cengage Learning EMEA. Griffiths, T. (2001). Contemporary Australia. London: Taylor & Francis. Tomasic, R., Bottomley, S. & McQueen, R. (2002). Corporations law in Australia. Canberra: Federation Press Read More