Ethics and governance in the European Financial centers

KPMG Luxembourg has just co-published with the Luxemburger Wort an interesting study about the banking sector in Luxembourg: Luxembourg Banks Insights 2009.

 

 

I have selected and commented a couple of statements.

 

Excerpt of the message by Mr Luc Frieden, Minister of the Treasury

 

Our current efforts notably aim at revising the regulatory or supervisory frameworks in such a way that they focus as much on the macro-prudential and cross-border context as on individual financial institutions. In the pre-crisis era the realities of worldwide economic and financial integration had indeed not yet been sufficiently taken into account but this is now due to change.

 

Luxembourg strongly supports recent international initiatives to restore full accountability, integrity and transparency to the financial system, including by fighting against possible abuses of financial centers to finance illegal activities or evade taxes.

 

Mr Frieden is one of the best politicians in Luxembourg. I wish he told the truth at the beginning of the Madoff affair on the misleading transposition that opened the drift with UBS.

The reality is that the influence of the business (read every professional: bankers, lawyers, auditors…) on the regulator and on the executive and the legislative is so important that until now the regulatory and supervisory frameworks were custom-made for the business : little control, little sanctions…, which was admitted by Jean-Nicolas Schaus, Former Director General of the Commission de Surveillance du Secteur Financier (CSSF).

 

Excerpt of the interview with Mr Jean-Nicolas Schaus, Former Director General of the Commission de Surveillance du Secteur Financier (CSSF)

 

The trend is towards stronger regulation, and there is no possibility to change this. At present, the larger EU member states are in the driver’s seat. Luxembourg is part of the EU, and nobody is considering to change this. In any event, this wouldn’t be possible, or even something to wish for.

 

Luxembourg as a financial place can also live without banking secrecy. I have never made a secret out of my opinion in relation to this question (…) I am not implying that banking secrecy should be abolished. We should keep it as long as possible. But the time has come to think about what will happen when it won’t be there anymore.

 

Mr Schaus is aware that something has changed and that the faster the financial center will take into account and accept new international trends including in the EU, the faster it will be able to face new challenges.

 

Excerpt of the interview with with Frank Wagener, Chairman of the Executive Board,  Dexia-BIL S.A.

 

It is now the time for the banks to listen, whether from the public, from journalists, and from experts, and then to take the right actions to address the issues raised. I believe this is the way to win back the public’s confidence in the banking system in general.

 

Mr Wagener is the first professional that admits that banks have to listen to those who may raise any information that could contradict their reigning picture of reality, and take the right action.

I will contact him. I'd like to know what he's up to. My observation and my experience of the professionals in Luxembourg, with their so-called “business standing” (English translation for “honorability” in the English version of the Law of 1993), unfortunately incline me with mistrust.

 

Excerpt of the interview with with Jose Placido, Chief Executive Officer, RBC Dexia Group

 

There is clearly a lot of discussion of this topic [responsibilities and roles of a custodian] at present, but also a lack of clarity still, even though the position given in the circulars seems to be quite clear on the duty of care of the custodian.

What is urgently needed is more clarification and a harmonized understanding on the respective roles and responsibilities of a custodian, a depositary and the respective standards of care to be applied. The sooner we have this, the better it will be for the whole industry.

It is incumbent upon all custodians to demonstrate that the applicable standard of care of a depositary or custodian has been taken seriously, and that the proper measures have been implemented to meet that standard, such as using a dedicated network team to perform proper due diligence of sub-custodians.

 

Mr Placido is the first professional in the investment fund industry that admits implicitly that the so-called pragmatic legal and regulatory framework lacks of clarity (lack of clarity, seem).

 

I will contact him. I'd like to know what he's up to. My observation and my experience of the professionals in Luxembourg, with their so-called “business standing” (English translation for “honorability” in the English version of the Law of 1993), unfortunately incline me with mistrust.