Ethics and governance in the European Financial centers

The creation of the FATF was positive. Unfortunately the assessments do not comply with the reality as some countries that belong to the FATF do not respect the recommendations and even their professionals do not respect the authority of the FATF. Therefore the FATF list does not reflect the reality as there are actually many more non cooperative countries than the official list.
Hence the need for an actual certification with requirements to be met by any financial center to be certified.

1. Credibility of the statements

A financial center cannot be ethic when official statements doe not comply with the reality. In such case, the center cannot be trusted. This area is probably more sensitive for small centers where such dysfunctions are much more visible than in a larger center.
Requirements are not easy to define objectively but they could be for instance the absence of contradiction between what is stated and what is seen...

2. Means for detection

A financial center cannot be ethic if organizations that are responsible for the detection and sanctions either administrative (regulatory body) or judiciary (FIU) do not have the relevant means.
Requirements could be for instance the rate of staff responsible for the control compared to the staff in financial institutions, the rate of staff responsible for the control compared to the assets in financial institutions...
International comparisons should be very interesting.

3. Credibility of sanctions

A financial center cannot be ethic if sanctions for professionals that do not have a proper business conduct are not dissuasive enough. If the sanctions are ridiculous compared to the amounts of money laundering or frauds, there is no dissuasion. As the United Nations said
Requirements could be for instance a dissuasive minimum for fines, the effective communication of cases...

4. Transparency

A financial center cannot be ethic if issues are hidden or denied to show a Potemkine village. Two sub areas should be especially taken into account:
- On the one hand, the behavior of the media: do they play their role of fourth power or not?
- On the other hand, the transparency of Justice: are cases easily available or not?
Requirements are not easy to define objectively but they could be for instance the availability of judgments online, the presence of articles on the issues relating to the center in the media...

5. Independence of auditors

A financial center cannot be ethic if auditors are close to auditees because there may be influences. This area is probably more risky for small centers where such dysfunctions are much more visible than in a larger center.
Requirements are not easy to define objectively but they could be for instance the absence of personal links between the management of auditors and the management of auditees to prevent any conflict of interest, the capacity of auditors to raise issues relating to the financial center...

6. Protection of the client

A financial center cannot be ethic is the client is not protected.
Requirements are not easy to define objectively but they could be the jurisprudence in favor of the client when there is litigation with a financial institution, the active role played by the regulatory body to actually protect client's interests...

A rough analysis of the financial centers in the framework of this blog shows that there is curently none that meets every area despite the FATF positive assessments.

The FSA published a guide to explain the approach it uses to assess risks in firms and the part Non-Executive Directors play in the risk assessment process.


See guide