In the wake of the last financial crisis, we've seen a rising number of regulations designed to keep the financial services industry in check. But that's not all, individuals are under fire too with the possibility of hefty fines and suspensions. Hit with over 50,000 regulatory updates every year, the stakes for financial firms have never been higher.
Let’s take just one example – Margin Rules – introduced in response to the last financial crisis to standardize Over-the-Counter (OTC) derivatives. The framework was drafted through the Dodd-Frank Wall Street Reform, U.S. Consumer Protection Act, the European Market Infrastructure Regulation (EMIR) and similar regulatory reforms elsewhere.
If you’re one of the firms affected, it exponentially increases the complexity and volume of documentation that your business has to provide by set deadlines and into the future in order to comply and avoid the shutdown of a significant share of your trading book.
Financial trade documentation process
And then there’s MiFID II which goes into effect in January 2018. It represents a fundamental change for financial markets, requiring not only major implementation effort but also a re-assessment of entire business models. MiFID II will change the way nearly all OTC products are priced, traded and reported, and brings further changes to the exchange-traded equity market, affecting brokers, dealers, trading venues, hedge funds, asset managers, and global corporations.
Compliance officers in the regulatory firing line
It’s not just firms struggling with the mounting regulations. With a regulatory focus on personal liability, our research reveals compliance officers are feeling particularly vulnerable.
Whose job-related personal liability is likely to increase the most?
While regulators have made it clear that the intention is not to increase levels of enforcement but to encourage improved risk-aware and compliant activities, compliance officers are feeling the heat. Here’s a glimpse into the potential reputational (and financial) damage facing compliance professionals around the world:
- Hany Lotfy Awwad Abdelwahab was slapped with a $45,000 fine and a suspension for providing false or misleading information to the Dubai Financial Services Authority and for obstructing the investigation into the change of control of MAC Capital Ltd.
- Over in Hong Kong Hung Lai Ping received a fine of $150,000 in her role as responsible officer of Delta Asia Securities Ltd. for supervisory failures.
- Money laundering reporting officer for MoneyGram in the U.S., Thomas E. Haider, received an eye-watering $1 million civil penalty for failing to abide by anti money laundering provisions of the Bank Secrecy Act.
Although regulatory changes have been introduced to encourage due diligence and good behavior, one commentator notes:
“Even the most intrusive supervision can only go so far in promoting the culture of ethics. The industry must itself take collective responsibility to promote higher ethical standards.”
– Building a culture of trust in the financial industry, speech by Ravi Menon, managing director, Monetary Authority of Singapore.
This changing regulatory environment is evolving the role of the Compliance Officer. They must be adept at not only adhering to regulations, but helping to raise awareness of obligations that ultimately help change the culture of an organization.
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