The near-collapse of the global financial system has brought home to investors the urgent need to understand the true picture of risks facing their investments. The crisis has prompted deep thinking about whether the current regulations for financial markets are rigorous enough to ensure that investors have the information that they need to assess risk, and to protect the public interest in securities markets being efficient, orderly and fair.
Few sectors of the economy are as risky as the oil and mining industries, which often make significant investments in natural resource-rich countries where the rule of law can be overridden by corrupt government officials. So investors in oil and mining have to be sure that they have all of the information they need in order to properly assess these risks. They also need to be sure that the regulatory regime and the regulators of securities markets are strong enough to address the risk that oil and mining companies may be subject to interference from corrupt foreign officials. In recent years, mining companies from the former Soviet Union, a region both rich in natural resources and notorious for high levels of corruption, have gained listings on the main market of the London Stock Exchange.
The first of these companies was Kazakhmys plc, a copper mining company operating predominantly in the Central Asian nation of Kazakhstan. Kazakhmys is a member of the prestigious FTSE 100 share index, meaning that institutional investors such as pension funds which hold the savings of ordinary citizens are exposed to its performance. A company intending to list must issue a prospectus for potential investors. Listing regulations state that this prospectus must provide information that is “necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the issuer.”1 Since investors rely on the prospectus to assess the risks of investing in a company, it is crucial that the information in this document is as comprehensive and impartial as possible.