AWARENESS
There certainly is increased awareness of the need for compliance and it is a prod- uct of many factors, the most important of which is the immense increase in regula- tion that has occurred in re- cent years. Anti-money laun- dering legislation has become much more wide-reaching, the pressure against tax eva- sion (and, unfortunately, against legitimate tax mitiga- tion) has led to increased reporting and information exchange requirements and businesses are subject to more detailed and rigorous financial reporting requirements.
SIGNIFICANCE
Compliance is set to gain even more significance and I do not see the regulatory tide turning any time soon. Ten years after the start of the global financial crisis, there is no sign of any sustained recovery and the global business and financial systems are still vulnerable. People running businesses are under enormous pressure to deliver results, and this some- times leads to them cutting corners – the various vehicle emissions scandals being a case in point. In my opinion, regulation is likely to continue to increase in rigour and in scope, extending to previously- untouched areas.
CORPORATE GOVERNANCE
Effective corporate gov- ernance is necessary but not sufficient. Ineffective corporate governance has been a factor in most major corporate failures all over the world and also here in Cyprus. But corporate governance also needs to be backed up with effective monitoring and sanctions. Otherwise rogue elements will find a way to bypass the controls and hide their misdeeds. Effective polic- ing has a deterrent effect: if people know they are going to be found out they will be less likely to trangress than if they think they have a good chance of getting away with their misbehaviour.
BOARD OF DIRECTORS
There must be full com- mitment to good corporate governance and compliancethroughout the organisation and it must be led from the top. Directors and senior management must not only be committed to compliance but they must also demonstrate that commitment, Otherwise, those lower down the chain of command will conclude that the organisation is merely paying lip service to the concept, and they will not take compliance seriously. I remember the case a few months ago of the chief executive of a major global company trying to unmask a whistleblower.
ROBUST AND APPROPRIATE POLICIES
Organisations which operate honestly and transparently will succeed in the long term. They eliminate waste and reward the best people, increasing their efficiency and providing their customers with the best value. However, unscru- pulous companies may be able to gain advantages in the short term by doing the opposite, for example by bribing corrupt government officials, as several international armaments companies are known to have done. The law must provide the appropriate tools to pre- vent this: self-regulation is not enough. However, there does need to be a sense of proportion. I am rather afraid that, in some areas, regulation is being introduced for its own sake, without consideration of the costs and benefits. Indeed, there is a widespread percep- tion that regulation impacts dispropor- tionately on law-abiding people, and is ineffective against organised criminals. Let me give you one example. In order to fulfil their tax reporting obligations, banks have to obtain confirmation from their customers of their tax residence. This requirement applies to all custom- ers, even if the balance of their account is only a few euros. It is an enormous and costly administrative exercise, and for the overwhelming majority of cus- tomers it serves absolutely no purpose, since they receive no interest on their account, and have no tax to evade. Governments and regulators should be focusing their resources on the big fish, who currently seem to be immune.
LEGAL SECTOR REGULATION
The legal sector is, in my experience, well-regulated, with the right balance being struck between allowing lawyers to get on with their businesses and ensuring that users of legal services and the wider public interest are safe- guarded. Of course, there will always be cases from time to time that lead people to argue that more or less regulation is needed in certain areas but, on the whole, I consider the level of regulation is right.
IMPLEMENTATION
I would not presume to offer advice to the regulators, who I believe are doing a good job. The only general comment I would make is that it is important for lawyers to know that, if they do breach standards, they will be found out and punished accordingly. In the final analysis, the fear of detection and punishment is the most effective deter- rent. If people know that they cannot get away with bad behaviour, they will think twice before misbehaving.
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