Compliance: Now it’s getting personal

personal

We may be on the brink of a new era in compliance – or at least in enforcement. This week the Bank of England Governor Mark Carney earned headlines around the world when he suggested that individuals’ base pay as well as their bonuses could be at risk if they failed to act properly. And he was not alone as other regulators and policymakers publicly voiced whether the current regulatory curbs were actually succeeding in improving behaviors in financial services.

We know that financial fines are getting bigger. In 2013, the UK regulator issued fines some 18 times greater than its predecessor had in 2008 – but that is by no means the whole story. Our survey on the rising costs of non-compliance – published this week – highlights the increased focus among regulators on greater accountability and personal liability for the individuals involved in compliance breaches. Enforcement cases now routinely see the departure of senior executives and the clawing back of any recent bonuses. In market abuse cases individuals rightly face prison sentences.

The pressure is on compliance departments, therefore, to keep their businesses – and their bosses – on the right side of their regulators, certainly, and where possible to future-proof their business activities by monitoring and anticipating the latest thinking among the world’s regulators. (more…)

A new dawn for China – and the global investment community

shanghai dawn

This is a genuinely historic week for the world’s financial markets. For the first time investors worldwide can invest directly in the companies driving this country’s amazing growth story via the Hong Kong-Shanghai Stock Connect initiative.

From this week, investors are able to trade in shares listed the Hong Kong and Shanghai stock exchanges, with some minor restrictions. Until now, investors outside China faced lengthy application processes to acquire the required approvals from the Chinese Securities Regulatory Commission. Now, to a great extent, if you can deal on one exchange you can deal on them both. (more…)

Bringing illicit trade and crime out of the shadows

shadows

Illicit trade and organised crime is something that that surrounds us all. While the illicit economy is by its nature difficult to measure, one of the more staggering estimates is that it is as large as 20 to 30 percent of the global economy or about $50 to $70 trillion dollars.

Illicit trade and related terrorist or criminal activity is not something that just operates in the shadows. An economy of this size is not something that can be stuffed under mattresses. It is extremely complex and equally sophisticated. Illicit funds reenter the licit world through routine activities like real estate investments, the sale of high value goods like antiquities and art or financial transactions, not to mention more nefarious activities like wildlife crime or human trafficking.

Governments and regulators have already zeroed in on banks as the first line of defence, placing stricter requirements that impose more due diligence checks on clients’ relationships in order to help prevent terrorist financing and other financial crimes. (more…)

Who is responsible for managing compliance risk? You are, say regulators

High profile scandals and enforcement actions around the world have elevated the stature and scale of the compliance function across our industry.  This could be seen as, perhaps, one of the few good outcomes of the financial crisis.  Yet compliance is moving into unchartered waters.  The focus on personal liability as an enforcement priority is sending a chilling message to boardrooms and compliance teams alike, just as regulators are also shifting focus from rules-based compliance to concepts which are harder to measure, none more so than culture and conduct risk.

But measure is exactly what we must do.  This week at our 10th annual Compliance & Risk Summit in London, the UK’s Financial Conduct Authority (FCA) enforcement director Tracey McDermott spoke to a packed house of 500 compliance professionals.  Ms McDermott’s message is that conduct and culture will be key indicators used to assess if the customer is being treated fairly.

Conduct risk was not even on the radar of most compliance officers three years ago and its exact meaning is still not strictly defined.  What we do know is that conduct risk is not market, credit, liquidity or operational risk; it is more about the way that firms and their staff conduct themselves. For compliance teams this means traditional quantitative-based analysis around the compliance of rules won’t suffice in assuring boards and regulators that their firms have done the right thing by the customer. (more…)

The rise of the renminbi as a truly global currency

US dollar vs China yuan

Now that China is overtaking the US to become the world’s biggest economy, the rest of the world is seeking to assess when the renminbi joins the ranks of the world’s reserve currencies.

Last week the World Bank reported that in 2011 the Chinese economy had been around 87 per cent the size of the United States economy. If China’s growth meets International Monetary Fund expectations, it could therefore expect to overtake the US to become the world’s biggest economy later this year.

To an extent, this is an abstract concept: nobody gets a medal for being the world’s largest economy. What is really interesting is the emergence of the renminbi as one of the world’s major currencies, in spite of the controls inherent in China’s centrally-planned economy.

This week we published the latest figures for renminbi trading across Thomson Reuters foreign exchange platforms. As might be expected, the renminbi trading volumes on both of Thomson Reuters venues – Matching and FXall – climbed to record highs during April. It is now one of the top 10 traded currencies on FXall, and one of the top four currencies on Matching.

The critical question is therefore just how and when this  powerhouse currency joins the US dollar and the euro to become one of the world’s reserve currencies: what is the roadmap for the renminbi?

white paper we supported with the trade association ASIFMA and Standard Chartered on the future of the renminbi looks at this very question. (more…)

It’s not just who you know, but what you know about them

Government-issued passports have been around for a few centuries now and it’s almost impossible to envision a world without them.  Imagine having to fill in documentation and providing records that certify your identity and nationality for each country you visited. It would be pretty time consuming for the traveller and even worse for the countries being visited in terms of the number of employees needed to process and confirm the authenticity of the applications and associated documents.  Yet, this is exactly the state of affairs in the know your customer arena.

The concept of “know your customer” (or KYC) is as old as banking itself.  From modern banking’s beginnings in the 14th century Italy through to the hackneyed image of a stern manager reviewing a loan’s status with a client, the idea of knowing the person you borrowed from or lent to is something very familiar to us all. We are now, however, long past the days when the banker knew all of his or her clients directly or via a referral from a mutual party. The explosive growth and globalization of banking and the introduction of anti-money laundering and KYC regulations in the 1970’s certainly changed that business model.  More recently, high-profile million dollar penalties meted out to financial institutions have underlined that KYC requirements are not just the sole concern of small, over burdened compliance functions, but also an issue for the board room. (more…)

Executive perspectives: Role of news across our business

As the world’s leading news and information company, we not only reach more than a billion people worldwide with our Reuters News coverage, but we also generate and consume news across all of the professions that we serve. For more insight on the importance of news across our business, we talked to several of our leaders to gather their thoughts on how we provide our customers with the news they need, when they need it, regardless of what profession they are in. Here’s what David Craig, President of our Financial & Risk business, had to say:

“News is the oxygen of our business and the financial markets. The global financial community relies on news, every minute, every day. Reuters is the trusted, unbiased and authoritative source of news on companies, politics, macroeconomic changes, and events that inform discovery, insight, innovation and action. With 4 million news downloads a month on Eikon, where news is embedded within our customers’ workflows.

News is also at the heart of our mission and proposition, connecting customers to communities such as the Global Markets Forum, where journalists curate and lead discussions of the leading events of the day, 24 hours a day.

Whether exclusives and reporting on breaking stories, or analysis and data that enable critical business decisions, our award winning journalists across markets, sectors and geographies provide advantage in an industry where information and speed are paramount, and where separating the news from the noise and the signal from the static is our greatest strength.

News is a critical competitive advantage for us – and an essential one for the professionals we serve.”

Check out our other stories on news: (more…)

Unlocking innovation on the path to financial market regulatory reform – Download from Davos

World Economic Forum (WEF) in Davos

Five years on from the onset of the global financial crisis, it’s plain to see that regulatory reform efforts at the national and regional levels have diverged presenting an urgent need for a coherent and coordinated response from regulators. Given the risk that regulatory divergence poses, it’s no surprise that this key issue was high on the agenda at the World Economic Forum in Davos last week.  I joined one of the more interesting discussions on this topic in a working group meeting consisting of heads of banks, asset management firms, insurance companies, rating agencies and government representatives – all of whom ardently discussed the impact of regulation on innovation. (more…)

What’s next in disruptive technology and innovation in financial services – Download from Davos

Regulation and technological innovation are among the key subjects being hotly debated both on and off the official agenda at the 43rd annual World Economic Forum which kicked off in Davos this week. These topics were especially scrutinized during the WEF’s Disruptive Innovations in Financial Services working group meeting on Thursday. This group, of which I am a member, includes a small number of senior representatives from leading banks, insurers, wealth and asset management firms and financial organizations. (more…)

Despite a strong year, trust still lags for the financial sector

Reading the headlines this week as Goldman Sachs, JP Morgan Chase, Wells Fargo and Morgan Stanley topped market estimates, as Bank of America posted losses due to mortgage-related charges stemming from the financial crisis and Citigroup’s earnings jumped over last year but missed market estimates, I was struck by the extraordinary distance the financial sector traveled in 2013.

When we began monitoring the TRust Index metrics in Q1 2013, there was considerable uncertainty for global financial institutions and world markets. By year-end, with world equity markets close to six-year peaks, our Q4 TRust Index data showed a stronger industry had passed the five-year anniversary of 2008′s crisis. However, despite encouraging trends like tightening credit spreads and positive longer-term earnings forecasts, the Top 50 Global Financial institutions continued to score lagging trust in our news and social media sentiment analytics.

Sentiment (more…)