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Be compliant and get ahead

Do firms have to choose between competing well or complying with rules and regulations? Kirsten Morel investigates whether compliance can be used to gain that all-important competitive edge

small jurisdictions such as Jersey. Ask many people about compliance and you may well get a pinched expression and talk of having to jump through hoops, but many will also explain that compliance is a necessary evil that you can turn to your own advantage. But just what was it that brought about increased compliance in financial services in the first place? Was it the World Trade Centre attacks, the Enron scandal of 2001 or something else altogether? According to Helen Hatton, Managing Director of Sator Regulatory Consulting, the seeds of the compliance boom were sown way back in the early 1990s. This was a time when the UK government was looking at ways of plugging the holes in its balance sheet, and at the same time began to use charges based on financial crimes to convict organised criminals, particularly IRA members. Helen noticed the change while attending a symposium


on international economic crime in 1994. In previous years, the talk had been of tracking down fraudsters (think Robert Maxwell and Ernest Saunders). Suddenly the theme was cracking down on tax evasion. This combination of criminal justice initiatives and

revenue protection, along with the collapse of Long Term Capital Management (which helped trigger a recession) meant that the international landscape changed. Offshore jurisdictions were suddenly under the spotlight of various standard-setting bodies, such as the Organisation for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF), who started demanding greater cooperation and transparency.

44 June/July 2010

WENTY years ago, compliance wasn’t much of an issue for financial services businesses, whereas today it has become part and parcel of the culture of doing business – particularly in

On top of the game In the years that have passed since this transition, the global community has entrusted the international standard-setting bodies with the decision about which jurisdictions are okay to work with, based on their compliance with rules that those bodies have determined. Initially, it may have looked like the end of the offshore industry – the golden goose looked like it was about to be cooked – but Helen believes that what the changes demanded was a clear shift of mindset. “As an offshore jurisdiction, you need to change your

minds as to what such a jurisdiction is,” she explains. “You need to work from a different footing and ask ‘why would clients continue to use an offshore jurisdiction?’” Indeed, Helen believes that the move towards a more

compliant environment changed the game dramatically. “If offshore is about secrecy and facilitating illicit funds, tax evasion, regulatory arbitrage, then the game is dead. If all you’re offering is the above, you’ll have nobody to play with. You might find customers but you can’t do anything with their money. Customers won’t come to you because other nations apply such high due diligence to these transactions that it clogs up clients’ affairs and pushes up the cost of doing business [in this sort of jurisdiction].” In Jersey’s case, the evidence shows that this change

has successfully taken place. The island is white-listed and business continues stronger than ever precisely because the new emphasis is on promoting the island as being in compliance with international standards, having a good legal framework and remaining tax-neutral. Jersey’s compliance culture is giving it a competitive

edge against other similar jurisdictions. However, the next question is: if it works at the higher, regulatory level, can a strong compliance culture enable individual businesses to compete more effectively with each other?

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