Regulating the financial sector

Better enforcement of the law will protect residents from falling prey to bogus deals

Should banks and investment groups face stricter supervision? As The National reported yesterday, some investors complained to Dubai courts that they were facing financial ruin after pumping tens of thousands of dirhams into Ponzi schemes. Bogus traders promised potential investors 110 per cent returns on foreign exchange markets. In fact, they were merely redistributing funds from new investors. Unsurprisingly, many of these "companies" don't even have a licence to operate.

Most of these Ponzi schemes prey on new residents coming from less developed financial environments. These people are promised fabulous returns or easy money offered by cold-calling banks and credit card companies. More often than not, people wind up with more debt than they can pay back. Jennifer, a 26-year-old Filipina who works for a cleaning company in Dubai, invested 20 times her monthly wage in one of these Ponzi scheme.

What is the best way to crack down on these predatory practices? For one, there needs to be a renewed pursuit of rogue investment schemes, especially those that target low-income workers. As Sam Instone, chief executive of AES International financial advisers, said this year, these kind of get-rich-quick scams will thrive if they are allowed to get away with it. Put simply, existing laws must be enforced to deter these criminal Ponzi schemes.

It’s also true that customers have a responsibility to ask about the company they are investing with to double-check their licence and what activities they are authorised to carry out, but not every person is aware of their rights and they are often clouded by the temptations of easy money. As such, this is one of the cases in which education is arguably as effective as regulation. There should also be tougher action against cold-calling, which is often the entry point to these so-called get rich quick schemes.

Too many people are falling into large amounts of debt, which is why the practice must be reined in. We have sound laws on the books to protect individuals. What is needed is education and enforcement.

Updated: March 20, 2016, 12:00 AM