Financial Regulatory Forum

Global firms facing challenges of shifting regulations, their top lawyers say

By Guest Contributor
December 13, 2012

By Stuart Gittleman, Compliance Complete

NEW YORK, Dec. 13 (Thomson Reuters Accelus) - The “shifting sands” of regulation, especially since the onset of the financial crisis, are making it more challenging for U.S. public companies to conduct global operations, the top lawyers for three such companies said Friday.

The general counsels – Andrew Bonzani of Interpublic Group, Peter J. Ganz of Ashland Inc. and Elizabeth M. Sacksteder of Citigroup – spoke at the Institute for Corporate Counsel, which was cosponsored by Thomson Reuters and the New York City Bar Association.

According to their websites, Interpublic, a communications and marketing company, and Ashland, a specialty chemical company, each operate in over 100 countries, and Citigroup’s banking operations serve consumers, businesses and governments in over 160 countries.

Depending on its business lines, Citigroup faces banking, securities and possibly other regulators in each of the countries, but its U.S. regulatory environment has changed the most since the crisis began, and even more since the passage of the Dodd-Frank Act in 2010.

Almost all of Citigroup’s federal functional regulators have since become more active, and the Consumer Financial Protection Bureau, which was created by Dodd-Frank, plays both prudential and enforcement roles but with an enforcement mindset, Sacksteder said.

In each state in which it does business Citigroup faces banking, securities and possibly other regulators in each of the countries, many of whom are prosecutors or have an enforcement background, Sacksteder said. Citigroup is also monitored by industry regulators such as the Financial Industry Regulatory Authority and the National Futures Association, she added.

As a result, Sacksteder said, “we have many masters to serve who have different [and occasionally] conflicting agendas.”

Citigroup can sometimes map “a business line to particular regulators,” such as securities, “but some lines like banking require everyone to deal with the rules and the risk controls,” Sacksteder said.

“It’s not always as clear a practice as it should be, and it has intensified since the financial crisis,” Sacksteder noted.

For one thing, “every regulator is in fear of being [criticized] in the public sphere” for missing the next Madoff or trading scandal, Sacksteder added.

It is troubling that a prudential, open-books context can blend into an enforcement effort, especially when the staff of agencies such as the CFPB and the New York Department of Financial Services have a prosecutorial bent, but “it’s hard to know what to do about it,” said Sacksteder.

Bonzani and Ganz found less division in other countries between oversight and enforcement, but said a company must know the politics of each country in which it does business and the agendas of its regulators, judiciary and law enforcement agencies.

Bonzani and Ganz said this is particularly challenging when dealing with corruption-type issues while staying clear of the U.S. Foreign Corrupt Practices Act and the UK Bribery Act, and even more so in countries “where they don’t consider [everything] bribery” but rather a type of facilitation payment.

The financial crisis and Dodd-Frank have put “a forward-looking impact on what we can do or what makes economic sense to do,” Sacksteder said.

Some details such as the rules over proprietary trading will take years to work out, and others such as the Basel III capital requirements “will have a very big impact on ordinary people as well as banks, with unforeseen consequences.” For example, Basel “will put a heavy penalty on lending to people with lower FICO [credit] scores even if they are not sub-prime borrowers” by U.S post-crisis standards, and will affect countries with an emerging middle class, Sacksteder said.

Asking “How are you going to conduct your business in a way that is profitable in this new regulatory world?” Sacksteder offered an approach: educate regulators about the company’s issues and concerns and how they affect the regulators’ stakeholders.

But Sacksteder also urged discretion, saying, “Don’t make yourself the story” when it involves a cross-border or cross-industry issue, and cautioning firms to “take the time to learn the facts and decide how to best position yourself.”

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus (http://accelus.thomsonreuters.com/). Compliance Complete (http://accelus.thomsonreuters.com/solutions/regulatory-intelligence/compliance-complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges. Follow Accelus compliance news on Twitter at: http://twitter.com/GRC_Accelus)

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