The risk of being sued by those damaged by regulatory or enforcement action: over‐regulation of financial services?
| DOI | https://doi.org/10.1108/13590790510700580 |
| Published date | 01 July 2005 |
| Pages | 246-250 |
| Date | 01 July 2005 |
| Author | Paul Gully‐Hart |
| Subject Matter | Accounting & finance |
Journal of Financial Crime Ð Vol. 12 No. 3
The Risk of Being Sued by Those Damaged
by Regulatory or Enforcement Action:
Over-regulation of Financial Services?
Paul Gully-Hart
INTRODUCTION
This paper will focus on Switzerland and will discuss
the impact of regulatory and enforcement action in
respect of banking business and ®nancial services.
Third-party liability of the state in respect of regula-
tory and enforcement action will also be brie¯y exam-
ined.
There is currently a strong perception within the
Swiss banking community that regulatory action has
become over-zealous during the last few years. So-
called over-regulation is responsible for shifting con-
siderable resources towards legal and compliance
departments within ®nancial institutions and could
be aecting the competitiveness of the domestic ®nan-
cial market. According to an assessment made at the
beginning of this year by the managing partner of a
medium-size private bank, a private banker devotes
approximately 30 per cent of his time to regulatory
matters. The sector with the highest growth is by far
the legal department and even the operational sta
spend a substantial part of their time dealing with
compliance matters.
1
Bankers and providers of ®nancial services are con-
cerned that disproportionate resources are allocated to
complying with a ¯ood of regulatory rules and that
®nancial and administrative burdens associated with
compliance could jeopardise the pro®tability of the
®nancial services industry.
Among other matters, Swiss banks have recently
been subjected to legislation introducing corporate
criminal liability as well as the very far-reaching
Money Laundering Ordinance of the Swiss Federal
Banking Commission containing more stringent due
diligence requirements for banks, managers of funds
and securities dealers. Regulations dealing with the
equity of banks (put together by the Basel Committee
on Banking Supervision) have been extended from 30
to 900 pages. Swiss banks and other ®nancial interme-
diaries are now bracing themselves for a new wave of
legislation enforcing recent agreements between
Switzerland and the European Union regarding the
taxation of savings, strengthening administrative
assistance between stock market supervisors and intro-
ducing tougher sanctions for failure to comply with
regulatory requirements.
This paper will attempt to rationalise these concerns
brie¯y and will then determine the level of exposure to
legal action arising from regulation and law enforce-
ment.
THE OBJECTIVES OF REGULATORY
AND ENFORCEMENT ACTION
The regulation of banking activities and ®nancial ser-
vices has two traditional objectives: protecting private
interests (depositors, investors and creditors) and safe-
guarding public or collective interests, in particular by
promoting the integrity and good reputation of the
domestic market of ®nancial services. There is no
doubt that the pendulum of regulatory action is
swinging towards the latter. The focus is now on sys-
temic risks and ®nancial stability.
The ®ght against money laundering (that has now
been extended to the ®nancing of terrorism) is fully
integrated in these collective interests. In the current
environment of global standards shaped by important
international institutions, the discovery and disclosure
of severe cases of money laundering are damaging not
only for the ®nancial institution directly involved but
also for the image and good standing of the relevant
national ®nancial market.
To some extent, national policies in curbing money
laundering (or the ®nancing of terrorism) may aect
competition between equally developed ®nancial
markets. Switzerland belongs to the relatively small
group of well-developed international ®nancial
centres (including for instance London, New York,
Singapore and Luxembourg) and the Swiss ocial
policy is to maintain high standards in ®ghting
money laundering. The Swiss lawmaker will avoid
participating in any regulatory dumping or `race to
the bottom' just to provide a competitive edge to
the Swiss ®nancial market. Conversely, the Swiss
lawmaker and regulators will ensure that their
Page 246
Journalof Financial Crime
Vol.12,No. 3, 2005,pp.246±250
#HenryStewart Publications
ISSN1359-0790
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