How are you answering the new regulatory agenda?

After a period of “light touch” regulation, one big impact of the credit crunch that led to a global period of recession is a new era of regulatory inspection. The new agenda in regulation focuses on the public demand for increased accountability and action.

This point is fully made in the new Kroll Fraud Report which calls out the consequences of this new regulatory focus.

Some key points to take away from this are:

• You need to join up thinking in one area with what is happening elsewhere in your business. It’s no longer good enough to perform well in one area of regulation, if you have a huge compliance risk waiting to happen in another area.

• More resources are being aligned by the regulators to following up on what they find – so as a business you not only need to understand and mitigate your risks but be tackling the heart of the issues that may exist in your business to reduce the chance of action being taken against you

• What is your internal attitude to risks and issues? Companies who regulate themselves and fully investigate are often treated more leniently than where it is the regulator who first finds that problem. By building an environment of trust and openness it’s more likely that problems will be highlighted, and from there resolved, than with companies with a blame culture where risks are both siloed and silenced.

Regulation can be seen as nothing more than an onerous responsibility. By creating an environment where the concerns of the regulator are built into the acquisition processes and the way you do business, there is the opportunity to spot and resolve issues before they even get anywhere close to damaging the way you do business.

Money laundering and your business

The widening of the Proceeds of Crime Act in the UK in 2002 means that now there are a wider set of offences and more actions that can be taken by the regulators if money laundering is suspected or confirmed in a business.

What are some of the issues you might face in running your business?

• Being able to show that you “know your customer” especially where you deal with information and financial transactions
• Being given a “production order” by the authorities and needing to understand what information you need to give, and what information is outside the scope of the order
• How to avoid “tipping off” someone who is suspected of potential money laundering offences
  
• Recognising and understanding what money laundering is, and what your responsibilities as a business owner are
  
• Where to seek help if you are faced with a criminal investigation
  
• What the implications are for your business
  

As a business owner it is absolutely key that you understand what your responsibilities are, for instance in keeping good business records, so that you don’t accidentally risk an even bigger issue for your business. Plus, many of the points around money laundering help you to assess risk levels within your business and any other potential risky or fraudulent activities which may be happening internally.

Finding out about your responsibilities can be done through some initial research into money laundering regulations. If you are faced with an investigation or believe you have an issue, then it is best to seek advice from a money laundering solicitor, who can help you to understand fully the issues and what actions you need to take.

Resources:

Anti-money laundering services

ICAEW money laundering regulations

UK criminal law firm

SOCA resources on money laundering

Securities fraud and insider trading

The recent case involving former McKinsey director Anil Kumar highlights the risks that some of the worlds largest companies face from employee leaks and insider trading. Kumar stated he made £1.6m giving inside market information to one of America’s richest men, Raj Rajaratnam. Twenty one people, including employees of IBM and Intel, have been charged in this case. So how do companies large and small protect themselves from breaches and employee misconduct when the rewards are so enticing for those who are providing the tips?

The Securities and Exchange Commission regularly brings insider trading enforcement actions against corporate officers, directors and employees who trade their employer’s securities after learning of significant developments. But insider trading also includes friends, family members, and business associates who trade securities after receiving confidential information. While the SEC is actively trying to shine the light on hedge fund operations in an effort to detect any insider trading, and new technology is available to help staff catch unlawful trading patterns.

Insider trading has been around for, well as long as the stock market basically. Most companies know their securities will be traded when something significant happens. What they don’t want, is employees breaching their duty or confidence to provide non-public information to brokers or analysts in return for compensation. To prevent this, companies need strict policies for secure communications, compliance, and governance.

Communication within large organisations can and should be monitored for suspicious activity. Directors and top executives should communicate externally through secure, authorised networks. With stakeholders, corporate governance should apply to non-public price sensitive information. Discretion is advised with a board of directors where non-public information will impact the decision making process for a company, without putting stakeholders at risk of criminal or civil activity. Insider trading regulations prohibit privileged communications of insider information to individual shareholders or groups of shareholders.

Finally, a few words on corporate transparency. Regulators look to enforce transparency in listed companies to avoid stock manipulation. Transparency builds shareholder confidence, whether in financial reporting, mergers and acquisitions, or in the trading activity of directors and senior level executives.

Laws and technology are working towards identifying insider trading activity and prosecuting the offenders. Companies must do their fair share in preventing it from happening in the first place.

Resources:
Financial Services Authority

Regulatory investigations

FBI Securities Fraud Awareness

Insider trading defence lawyers