Compliance – acting in accordance with applicable law – is of increasing importance to financial institutions. Since the banking crisis of 2008, the requirements have grown steadily. Additionally, the regulations and laws of other countries involved must be considered in international business relationships. The EU has adopted a number of laws aimed at combating terrorism, transparency in all business relations, preventing corruption, and compliance with EU data protection directives. A few of the most important requirements are addressed here.
EU anti-terrorism directive, money laundering guidelines, Law on the Optimization of Money Laundering Prevention
Among these regulations are: the EU anti-terrorism regulation, according to which each company is required to ensure that its business contacts are not on any sanction list; the money laundering guidelines 3 to 5 including proof of legitimization; and the Law on the Optimization of Money Laundering Prevention. In this case, paragraph 6 was amended in 2012, which requires financial service providers to check on domestic counterparties or beneficial owners whether they are PEPs (politically exposed persons) who, due to their influential position, are at higher risk for corruption and money laundering.
EU-GDPR, Transparency Register
The EU-GDPR, the European General Data Protection Regulation, has been in force since May 25, 2018 and constitutes new demands on the processing of personal data across Europe. It calls for the establishment of a data security management system that can be used to prove where personal data is located and makes access to it recognizable and comprehensible. Failure to meet these obligations will result in drastic fines. Together with the entry into force of the 4th EU Money Laundering Directive on June 26, 2017, the Transparency Register was introduced in Germany. It is used to collect data and makes information available on beneficial owners of corporations, partnerships and foundations that operate on the financial market. The register is managed electronically by the registry as a sovereign task of the federal government. First reports had to be made on October 1, 2017. Violations will be punished with high fines of up to € 100,000; in particularly serious cases penalties can even reach the millions.
Only efforts and costs? Also new opportunities!
The regulations mentioned above are just one part of the numerous requirements that must be respected. Of course, their implementation involves enormous administrative effort and high costs. The requirements for compliance are increasing, specifications are becoming stricter and the fines higher. The advancing globalization offers enormous opportunities, but also comes with new risks from which one must protect oneself. And this comes with a price tag. But why not turn that cost and the new challenges into a competitive advantage? There are opportunities to be recognized and used. The money laundering guidelines mentioned above have established proof of legitimization, which protects credit institutions. As part of “know-your-customer activities”, these due diligence tests (CDD) are used to identify customers. And who does not like to know who they are dealing with to protect themselves from unpleasant surprises? Another important advantage of compliance is the prevention of corruption and, as a result, the reduction of fines that would otherwise result from scandals in the financial industry. Effective compliance can prevent all that.
“Do good and talk about it”
Those who fulfill the compliance requirements, abide by the rules and communicate the implemented measures externally, create a good reputation. Trust arises and that ultimately leads to greater customer loyalty. Customers want to be able to rely on their bank, they welcome transparency and legal compliance and offer their loyalty in exchange. The competitive advantage for financial service providers with an effective compliance is therefore obvious. However, this stands and falls with your employees. This is the next challenge. The topic of compliance must also be communicated correctly in the company. If successful, it is possible to create a true compliance culture, with a comprehensive meaning everyone understands and likes to participate. A whole new solidarity and team spirit can emerge – the foundation for success. Reasons enough to invest in compliance and look optimistically into the future.
https://www.bafin.de/DE/DieBaFin/GrundlagenOrganisation/Compliance/compliance_node.html; Accessed 14. September 2018
https://www.bankingclub.de/news/compliance/was-bedeutet-die-eu-dsgvo-fuer-banken-und-ihre-kunden; Accessed 14. September 2018
https://www.management-circle.de/blog/risikokultur-nur-eine-complianceuebung; Accessed 15. September 2018
https://www.springerprofessional.de/finanzbranche/compliance/compliance-ist-der-groesste-kostentreiber/13298260; Accessed 15. September 2018
https://www.management-circle.de/blog/bewusst-handeln-compliance-in-banken; Accessed 15. September 2018
https://www.haufe.de/thema/transparenzregister; Accessed 15. October 2018
https://www.transparenzregister.de/treg/de/start?5 Accessed 15. October 2018