Wash Over of Recalcitrant Boards by the Rise in Financial Regulation

Despite the regulators clamping down, there is not enough ‘board level’ activity being done by almost half of the biggest finance corporations in the world for addressing bonuses and risk management. Research shows that although there was a rise in newer regulations across the globe during the financial crisis for focusing on enhancing culture in organizations, only 60% of boards openly discuss their risk management.

According to the Deloitte biennial risk survey, a mere half of the respondents thought the culture as the responsibility of their risk management team. The head of Deloittle’s global risk group, Edward Hida, indicates that ethics and risk culture are much more than simple ‘buzzwords’; they are very real. Over 71 financial corporations were surveyed.

When it comes to assessing soundness and safety, US regulators are passed looking at only the liquidity levels and capital of banks and now use ‘qualitative’ assessments of the bank’s risk management in a yearly stress test. This practice has gained the attention of UK supervisors who plan to follow. Since the criminal offence that was introduced to the UK of recklessly mismanaging a bank, the UK has some extremely tough laws and guidelines on remuneration on the globe in an attempt to keep management up to its highest degree.

Another increasing concern for the bigger corporations of the world is tougher regulation which includes the fallout from subsequent litigation and global probes.

According to a different survey conducted by Norton Rose Fulbright, regulatory litigation and investigations were among the top concerns and third-largest dispute for general counsel and their company.

The head of investigations, Chris Warren-Smith, for Europe, Asia and Middle East at the law firm, states that even though the investigations of the foreign-exchange market and manipulation of Libor are wrapping up, there is still a concern to financial corporations regarding the continued regulatory probes within various benchmarks which include precious metals and commodity trading reviews. He also says the UK has an increased interest in sanctions compliance.

The UK Financial Conduct Authority and US Department of Justice along with other authorities are additionally exploring the wrongdoing in the past to determine if any repeat issues would warrant increased penalties.

The Financial Times reported the 2012 non-prosecution agreement between UBS and DoJ over Libor is at risk of being annulled as part of forex manipulation deal negotiations. Mr. Warren-Smith states that similar to the UBS issue, you will start to see lots of pressure on the NPAs and DPAs. He goes on to say the DoJ says they will tear the agreements up if needed. Over 803 corporate company counsels’ responses were surveyed around the world. Many of them had revenue that exceeded $1bn. Half the respondents stated their company had employed outside counsel just recently for helping in a regulatory probe.

Company size does matter when it comes to regulatory proceedings, the survey found. Over half of the big corporations report they one or more proceedings pending already against them as opposed to 16% of smaller companies. When it came right down to it, half of the corporations with $1bn revenue or more stated they had a regulatory case or two against them.

Page Updated: May 18, 2015