Banks are now in danger of falling prey to compliance fatigue, as they are swamped by a growing amount of re-regulation.
Regulation in Europe has shifted gear. More than 40 separate directives containing high-level principles will challenge banks in the next three years, to be developed by the EU Commission in consultation with industry bodies and European governments.
The Risk Based Capital Directive (Basel II) and the Markets in Financial Instruments Directive (MiFID) are the most important of these, as they are likely to impact on the behaviours and structures of the markets themselves.
The growing rash of legislation aimed at improving internal control of information includes in the UK:
- Anti-discrimination legislation;
- Anti-money laundering legislation;
- Companies Act and Combined Code;
- Competition law;
- Data Protection Act 1998;
- FSA Regulations;
- Freedom of Information Act and other sector-specific legislation;
- Health and Safety Regulations; and
- Tax, including VAT provisions and the EU Savings Tax Directive.
These new rules and regulations have put huge demands on business, accounting and security procedures and processes of businesses operating in this sector.
Companies must also keep a keen eye on international laws brought in to strengthen the integrity of capital markets after the fall of corporate giants Enron, Worldcom and Parmalat, such as the US Sarbanes-Oxley Act 2002, and the new International Accounting Standards (IFRS).
But it is imperative that banks do not lose sight of the point of compliance. Many of the provisions mentioned above have teeth, meaning that companies flouting them face criminal (rather than civil) sanctions. The former head of Worldcom has been jailed for 25 years following the £6.2 billion fraud that lead to the collapse of his company. So no matter how dull it gets, directors cannot afford to ignore compliance in the current climate.