A Happy Compliance Thanksgiving

Grete Chan, 22 November 2012

With the Macy’s parade just past with colorful costumes and cheering crowd, Americans are heating their ovens as the turkey is stuffed and ready to cook. A fantastic federal holiday to remind us that we should be thankful for the things that we have around us, things we have achieved and things that are to come.

In the Compliance year of 2012, many things have happened ranging for the imprisonment of a rogue trader, some resolution for Madoff victims, a whistleblower’s victory against the banking giant, and the public naming and shaming of Congress most Corrupt. From the list, here are my top 5 on what we should be thankful for:

1. Barack Obama Reelected as President

While in no way advocating for all his policies and political ideologies, having President Obama firm in the President’s seat means a definitive commitment that the much needed rules will see light including the much hated but needed Dodd-Frank Rules and the Volcker Rule within.

For the opposition, this should also come as a relief in the sense that the rule-making have reportedly been slowed down as lawmakers no longer have to scramble to finish, in fear that should Mitt Romney be in administration, he would threaten the continuation of the mandates. This will ideally ensure a more responsible and considerate drafting of the rules to ensure that it encourages productivity rather than the contrary.

Artist Credit: John Cole/Scranton Times Tribune

2. The LIBOR Spotlight

If consumers have no say over what rate their mortgage interest would be at, why should the big banks? Ever since Barclays and several unnamed others went into the spotlight for rigging the precarious and nontransparent interest rate for inter-bank lending, there have been a chain of regulatory scrutiny over the validity of the rate, the resignation of the British Bankers’ Association as the rate setter and the EU regulators to step in and provide oversight, and reforms on how to level the playing field for all market participants.

3. The Fight against Global Corruption

The US forged ahead to release the highly anticipated guidance to the Foreign Corrupt Practices Act (FCPA), with the objective to curb foreign corruption and ensure that the books are transparent and accurate. The UK also reinforced their own version called the Bribery Act 2010 and aligns many principles with the FCPA.

On the social side, with the economic crisis prompting revelations of how taxpayers’ money ended up in politician’s pockets, critical reflection takes place especially in the Mediterranean countries (such as Greece, and Spain), and also in China.

While the fight has only begun, certain victories have already been won, as we strive to create a fairer world.

Photo Credit: Getty Images

4. Heightened Awareness of some Moral Hazards

With Sandy sweeping up the East Coast of the US, many valuable lessons have emerged in terms of the need for well tested and prepared back up plans, the threat of “Rogue Cheetahs” on High Frequency Trading, and the renewed efforts to shield against another collapse of Systemically Important Financial Institutions.

On the other hand, the repercussions are hitting back, as the authorities began their crackdown on the top contributors of the recent financial crisis. These targets alleged crimes include mis-selling sub-prime mortgages such as the “hustle” scheme and the irresponsible bundling of these high risk mortgages into securities which fueled the housing bubble and collapse.

5. Global Financial Regulation Matters

Artist Credit: Ingram Pinn/Financial Times

The systemic failures of too-big-to-fail organizations and the outbreak of the financial crisis bumps the subject of Global Financial Regulation high on the agenda. With the financial market largely deregulated, it is high time to see that salesmen can’t be trusted to sell ethically and fairly, so the rules must be back and here to stay.

A similar story went back to the Great Depression and crash of the stock market, which gave birth to The Glass-Steagall Act which was subsequently repealed in 1999. As a consequence, a decade later the financial crisis came. This is proof enough that deregulation does not work, as those who work for profit targets and sometimes in fear of losing jobs, clearly do not care for ethical practices.

The Euro crash saw that the unification under one currency was truly an upheaval of unpreparedness and revelations of deeper problems such as the Mediterranean corruption and the differences between market structures. The good news is, although that it is very painful now, it helps to make aware the festering problems of the system and the urgency needed to fix it.

As with Asia, the growing power of China also saw higher scrutiny of the old bribery practices, and develops further laws to prevent this behavior and to promote better investor confidence.

Overall, although the crisis has been a painful lesson to all of us, innocents included, it does help to reflect on how to improve our markets to promote a healthier and more sustainable place.


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