Ethics and governance in the European Financial centers

Margaret Cole, Director of Enforcment, FSA, was invited this week at Fordham Law School, New York
She explained why the FSA is so credible in its assignments as regulator.
She explained notably that own procedures enable them to impose unlimited fines, to alter or withdraw a person or a firm's ability to conduct regulated activities, or even to prohibit (ban) them from the industry altogether.
The FSA actively looks for new ways to make sure its penalties bring about the deterrent effect the FSA wants to achieve. This means considering not only the types and levels of penalties the FSA imposes but making sure that the penalties impact upon the right people

See speech

The ALFI (Association Luxembourgeoise des Fonds d’Investissement) is the official representative body for the Luxembourg investment fund industry and was set up in November 1988 to promote its development. It published récently a brochure in French about careers in the investment funds.

It is interesting to observe the expected profiles for the compliance officers and internal auditors positions.

The qualities for the internal auditor are the following:
University diploma in economic and financial sciences or of accountancy
Open to acquire specific qualifications
Bilingual, even trilingual
Ambitious, motivated
Team spirit
Excellent relational capacities

The qualities for the compliance officer are the following:
Economic, legal or regulatory university diploma, ideally supplemented by one 3rd financial cycle high Level of professional competence in the field of banking and financial and the applicable standards
Good knowledge of the financial markets
Perfect knowledge of the general regulation and OPC industry.
Bilingual/trilingual English/French/German

It is striking that the keyword for the functions is missing in this official brochure supported at the govermental level: independence (or independent).

This is the critical quality for such jobs.

On the other hand, a quality like "Ambitious" poses a major problem: it appears incompatible with the job which precisely must take the risk if necessary to be opposed even if it means to bring into play the position : an ambitious guy will not oppose his management all the more that management in Luxembourg consider officially vague and ambiguous offences such as forgery, use of forgery, false balance sheet, use of false balance sheet or unauthorised use of corporate property (See ABBL report in 2003 )

In a nutshell, these functions are "formatted" in Luxembourg so that they do not disturb too much by focusing on the languages and the legal and regulatory standards (that anyway are regularly changing ). But independence is not sought.

In October 2005 statutory guidelines to the Administrative Sanctions Procedure were issued. These guidelines were issued by the Authority pursuant to a power in the 2004 Act and expand for staff of the Financial Regulator on the detail in the 2004 Act on how the Administrative Sanctions Procedure is to be operated. In addition, a non-statutory “Outline of the Administrative Sanctions Procedure” was also published. This is a high level explanation for regulated financial service providers of the process and procedure involved in the Administrative Sanctions Procedure and will be updated fromtime to time in light of experience
The following sanctions may be imposed:

Caution or reprimand;
Direction to refund or withhold all or part of an amount of money charged or paid, or to be
charged or paid, for the provision of a financial service;
Monetary penalty (not exceeding €5,000,000 in the case of a corporate and unincorporated
body, not exceeding €500,000 in the case of a person);
Direction disqualifying a person from being concerned in the management of a regulated
financial service provider;
Direction to cease the contravention if it is found the contravention is continuing;
Direction to pay all or part of the costs of the investigation and inquiry.

The Irish Financial Services Regulatory Authority (‘Financial Services Regulator’) does not communicate the cases. The information that is provided is less detailed than the information that is provided in Luxembourg by the regulator (CSSF) in the annual reports.

But the Irish Financial Services Regulatory Authority publishes warning notices naming firms, which operate, as investment business firms in Ireland without appropriate authorisation. Under the Investment Intermediaries Act, 1995, it is a criminal offence for an investment firm to operate in Ireland unless it has appropriate authorisation from the Financial Services Regulator. Clients of firms, which are not authorised, are not eligible for compensation from the Investor Compensation scheme.
In August 1998 the Central Bank of Ireland obtained legal powers to warn publicly about firms, which are not authorised. On 1 May 2003 these powers were transferred to the Financial Services Regulator.

Sources

Administrative Sanctions Guidelines

Outline of Administrative Sanctions Procedure

CP8 Consultation paper on administrative sanctions

Financial Regulator Response to CP8 Feedback

Response by Irish Bankers Federation (‘IBF’)

Warning Notices