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Financial regulation has never been more onerous. Increasingly, financial institutions of all sizes are coming to terms with rapidly expanding regulatory obligations and ever more stringent enforcement activity. As a result, compliance risks are becoming more important and challenging for firms operating in today’s climate – especially those that need to maintain compliance in a number of different jurisdictions with unique demands. Though there will likely be some similarities between regulatory regimes in some areas (countries within the EU, for example, will have many common threads), institutions are still required to be cognisant of a great number of regulatory requirements. Accordingly, it is imperative that both management and staff are provided with regularly updates and relevant training on companywide policies and procedures.

UNITED STATES

Dwight Smith

Nelson Mullins Riley & Scarborough LLP

“Virtually all financial institutions, regardless of size, face a growing number of regulations and increased supervision through both examinations and enforcement actions. The expansion of regulatory regimes is, in many respects, a response to the financial crisis of 2008 and 2009. Indeed, national economies are still absorbing the impact of the crisis, and until there is a strong level of public confidence in the financial sector, the intensity of the regulators will continue. Moreover, cooperation among national regulators, especially between UK and US authorities, has buttressed the regulatory framework for large financial institutions. Capital, resolution planning, and international matters such as the London Whale and the LIBOR rate-setting cases have forced large banks both to expand and to integrate their regulatory compliance functions.”

CANADA

Nancy J. Carroll

McCarthy Tétrault LLP

“Although Canadian financial institutions weathered the 2008 financial crisis relatively well, and are among the best capitalised financial institutions in the world, they have faced a significantly changing regulatory environment post-crisis. The Office of the Superintendent of Financial Institutions (OSFI) has strongly supported the development of international prudential standards by indicating its intention to fully implement Basel III well in advance of 2019 and by publishing increased expectations for corporate governance and risk management. OSFI’s priorities for 2015 to 2016 are to enhance its supervisory process and to focus on post-crisis priorities for larger financial institutions, including data aggregation and risk reporting capabilities. The Financial Consumer Agency of Canada has more than doubled its number of investigations from 2011 to 2014.”

ARGENTINA

Gabriel Matarasso

Marval O’Farrell & Mairal

“Financial institutions in Argentina are certainly operating in an environment of increasing regulatory scrutiny and enforcement activity. Current regulations from the Argentine Central Bank, the enforcement authority overseeing banking operations in Argentina, impose a wide range of requirements and obligations on financial institutions, and restrict and regulate many of the main aspects of the banking business. For example, the Central Bank has recently regulated many of the common sources of financial institutions’ income. Financial institutions may also be subject to other regulatory authorities depending on whether they provide certain complementary services. For example, financial institutions that provide capital markets services will be subject further to capital markets regulations which, as per a recent amendment, have granted the enforcement authority, the National Securities Commission (CNV), wide regulatory and sanctioning powers.”

COLOMBIA

Andrea Fradique-Méndez

Gómez-Pinzón Zuleta Abogados S.A.S.

“There is an increase in regulatory scrutiny and enforcement activity. The Colombian Financial Superintendency (CFS) has adopted risk-based supervision with respect to financial institutions and insurance companies which involves extra situ and in situ supervision and monitoring. The idea behind this approach is to allow the supervisory authorities a more comprehensive and preventive supervision which relies, to a great extent, on information provided by the institutions themselves and the adoption of internal control policies and procedures. In part due to the fact that risk-based supervision is still being fully effected, there has not been an increase in enforcement activity, except with respect to practices implying systemic risks, including data protection, conflicts of interest, manipulation of capital markets, mainly in connection with specific scandals involving the liquidation of Interbolsa, the then largest Colombian stock broker, as well as deposit taking activities by non-authorised entities.”

CAYMAN ISLANDS

Simone Proctor

Solomon Harris

“Nothing is singly more important to an offshore financial centre, such as the Cayman Islands, than its reputation. To protect its soundness, regulators in Cayman are tasked with maintaining an internationally acceptable regulatory framework and the correct balance of supervision and enforcement. It has to be done. It is clear that there has been increased regulatory enforcement activity in the financial services sector here. This is also evident in other financial markets as well. One only has to look at the number of enforcement actions brought, including against chief compliance officers – without commenting on whether they ought to have been brought, or whether they were ultimately settled and on what terms – by the SEC, the FCA and their peers, in the past 12 to 24 months. The numbers are staggering.”

UNITED KINGDOM

John C. Ahern

Jones Day

“Since the financial crisis, there has been a proliferation of regulatory measures in such volume and at such pace that it has been difficult for the regulated community to absorb. The regulatory response has been to radically curb the ability of banks to lend by imposing capital requirements that far exceed those that were in place prior to the crisis. In addition, Volker, Vickers and Liikanen have proposed massive structural changes to the way in which banks are organised so that retail deposits are protected in the event of bank failure. In the UK, regulatory policy has undergone a fundamental shift from ‘light touch’ to enhanced monitoring and supervision and the regulatory approach is much more intrusive than in the past.”

IRELAND

Andrew Bates

Dillon Eustace

“Like their international counterparts, regulated entities in Ireland are subject to an ever increasing level of regulatory scrutiny as well as enforcement activity. This is evident from the practical application of the Irish Central Bank’s probability risk and impact system, or PRISM – the risk-based framework for supervision of regulated entities, which it uses to determine which entities to focus mostly closely on and how frequently. It is also evident in regular Central Bank themed inspections, through regulatory questionnaires and also from the attitude of regulators in dealing with those they regulate. We are finding across all regulated industry sectors that there is a constant and deep questioning and challenging by regulators of what is being done, why it is being done and how it is being done.”

GERMANY

Dr Kirsten Donner

Kirkland & Ellis International LLP

“In response to the financial crisis, the European Commission pursued a number of initiatives to create a safer and sounder financial sector for the single market. These initiatives – the so-called Single Rulebook , which include stronger prudential requirements for banks, improved depositor protection and rules for managing failing banks – affect all financial players in EU Member States. Therefore, today’s financial services institutions, meaning credit institutions and investment services providers, are facing increasing supervisory activity on a national and European level. With regard to the European Banking Union, for instance, systemically relevant banks will be subject to closer supervision and misconduct will be avenged more forcefully. In addition, national legislators seek to improve a properly functioning banking and financial services system to promote the performance potential of a country’s economy.”

NETHERLANDS

Paul Rothwell

Deloitte

“Due to recent global macro-economic events, as well as local issues and scandals, the solid reputation of the financial system in the Netherlands has taken a blow. As a reaction, European and national authorities are becoming more and more demanding and continue to define new requirements with a prudential – e.g. leverage ratio – and behavioural – e.g. customer due diligence – impact. Since the Netherlands operates within a European context, the government is continuously balancing local and European requirements. In many cases the local legislation is more strict – e.g. banking bonus – impacting the level playing field.”

PORTUGAL

Pedro Ferreira Malaquias

Uría Menéndez-Proença De Carvalho

“The reinforcement of the regulatory framework applicable to banks in recent years and, in the case of Portugal, the Bank of Portugal’s application of an unprecedented resolution measure under an untested European resolution regime to one of its major banks in August 2014, were accompanied by, and led to, an increase in supervisory and enforcement activities. Prudential banking supervision and conduct supervision have become more intrusive and focused on risk. An analysis that was mostly static is now complemented by a cross-cutting analysis on the basis of institutions presenting funding and capital plans, as well as stress-test exercises. Permanent onsite inspections have also become normal practice. The number of administrative proceedings initiated and proceedings settled has also risen considerably in recent years. The implementation of the new banking union – including the single supervisory mechanism, the single resolution mechanisms and the new European regulatory authorities – has also contributed to the increased regulatory scrutiny.”

SWEDEN

Dan Hanqvist

Roschier Advokatbyrå AB

“Today’s financial markets are very different to the markets of the pre-financial crisis era. The official narrative of the aetiology of the crisis explains what happened with reference primarily to the wayward behaviour of institutions and individuals active in the markets. This explains the overwhelming focus on new, more intrusive regulation, both from the EU and nationally. The creation of three ‘federal’ supervisory authorities at the Union level can only lead to an ever increasing number of regulations. Any bureaucracy will keep itself busy and justify its budget by some measureable output. As too little attention has been paid to the economic policies of governments and central banks, demographics in the advanced economies, and to the competence, attitude and resources of regulators, as ultimate causes for the crisis, this output is likely to consist primarily of binding legislation and regulations, as well as a plethora of various guidelines and policy statements of dubious legal standing.”

RUSSIA

Grigory Marinichev

Morgan Lewis

“Over the last year, regulatory scrutiny in the Russian financial market has increased dramatically. As a result of the imposition of US and EU sanctions and the downgrade of Russia’s sovereign rating, the Russian banking sector has been put under significant pressure. Since then the number of banking insolvencies has been increasing, which has further shattered the market. The Russian Central Bank has responded by tightening its supervision over the banks. Furthermore, in response to Western sanctions the Russian government has implemented a number of ‘countermeasures’ which have also affected the financial sector and have resulted in further complications for the activity of financial institutions.”

SINGAPORE

Antony Eldridge

PwC Singapore

“In recent years, financial institutions (FIs) have faced large sanctions and fines as a result of non-compliance with regulations. It was recently reported in the Financial Times that based on a review of the announced settlements and penalties, as well as provisions set aside for potential penalties of the top 16 biggest infringers, the ‘conduct cost’ for the banking industry from 2009 to 2013 was approximately $300bn. Currently IT risk is becoming increasingly prominent and future failures could begin to add significantly to this tally. Regulators around Asia are updating their cyber security regulations to deal with the increasing and changing risks of cyber security, as well as to extend the scope of regulations to outsourced service providers of FIs. More Asian countries are enacting data protection laws.”

VIETNAM

Kent Wong

VCI Legal

“Banking reforms by the government have seen vital steps to revamp and restructure Vietnam’s financial sector. The boardrooms of Vietnamese banks are being zeroed in on as a part of the government’s intensified scrutiny of the banking system after the problem of non-performing loans. Increased pressure is not limited to the larger banks; smaller banks categorised as ‘weak’ are also facing more scrutiny. The stepped up regulatory scrutiny is the result of concerns that recent banking problems have been due in part to banks’ boards not understanding the risks they were taking and not exercising appropriate oversight. Despite the aftermath of high-profile criminal ‘mega-cases’ involving banks in Vietnam, including the imprisonment of senior staff members for embezzlement and fraud, regulators have focused on ensuring banks have robust financial debt ratio cushions.”

CONTRIBUTORS

Deloitte

Dillon Eustace

Gómez-Pinzón Zuleta Abogados S.A.S.

Jones Day

Kirkland & Ellis International LLP

Marval O’Farrell & Mairal

McCarthy Tétrault LLP

Morgan Lewis

Nelson Mullins Riley & Scarborough LLP

PwC Singapore

Roschier Advokatbyrå AB

Solomon Harris

Uría Menéndez-Proença De Carvalho

VCI Legal