Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

MiFID II conduct principles and markets integrity

MiFID II – the second Markets in Financial Instruments Directive – became law across the European Union on January 3, 2018.  It’s intended to overhaul the entire supervisory framework for financial sector organizations who are in the EU, have clients in the EU, or wish to have access to or establish equivalency for the markets there.  Its predecessor law, MiFID I, became law in 2004 and was judged to have not stood the test of time in the aftermath of the global financial crisis.  Therefore the seven year drafting process – from 2010 to 2007 – that culminates in MiFID II implementation this year is aimed to set a higher regulatory standard for investment banks, broker-dealers, and other institutional market participants and their employees.

Much of the attention about MiFID II implementation has focused on the burden to organizations from financial costs, human capital and efforts, and changes in commercial strategy that will be required for firms to work toward compliance with the new laws.  The laws are thousands of pages long and touch nearly every area of the financial services markets.  Some of the major areas of focus in MiFID II are investment research, transaction reporting, and brokerage compensation arrangements.  However, the far reach of banking and securities markets activities into the economy means that laws intended to govern this sector have a broad and dramatic scope as well.

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Travel safety and regulation

Travel safety is one of the most important objectives of the overall supervisory agenda.  Consumer protection and public safety intersect in this topic.  Keeping travellers away from harm and maintaining safe and orderly routes and equipment should be the top priority of any commercial entity providing transportation to consumers.  At the same time, companies working in the transportation sector look to legal and regulatory requirements to set minimum standards for safety infrastructure and motivate investments in technology and human capital improvements.  Regulatory action, or inaction, can therefore have a huge impact on protective measures and responses to threats to safety taken by companies such as airlines, rail transit operators, and private transportation providers.

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CSR tips for compliance professionals

Corporate social responsibility (CSR) is closely related to business compliance.  Both CSR and business compliance share the objective to integrate requirements from legal, regulatory, and social expectations with organizational strategy.  Business compliance has the broadest mandate of creating both rules-based and values-based structures and systems to support corporate and employee integrity and adherence to laws, regulations, and norms.  In contrast, CSR has these same goals but focuses on engaging in corporate actions that contribute to social good, generate positive public relations attention, and promote ethics and accountability.

While compliance is often focused on defining internal standards for conduct and strategy in order to follow or improve upon outside requirements, CSR has a much more public posture.  CSR is focused on defining the company’s positions on the environment, reform, justice, philanthropy, community relations, and other outwards-facing social initiatives.  After these objectives are defined, the company then presents and promotes its positions to consumers and society. CSR and compliance both contribute to a company’s mission statement and values, but CSR has a heavier hand in guiding the corporate image that is presented to consumers, industry partners, and society as a whole.  

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This week on Compliance Culture

Be sure to visit Compliance Culture this week for posts on these topics.

  • Monday: Compliance and CSR
  • Tuesday: Regulatory compliance and travel safety in history
  • Wednesday: MiFID II conduct principles
  • Thursday: FCC enforcement priorities
  • Friday: Ethics and risk in Groundhog Day

Don’t miss it!

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Justice in Black Mirror

As previously discussed on this blog, the universe of the science fiction show Black Mirror is very interesting from a compliance and ethics perspective.  As discussed in this post about the first three series of the show and this post about the fourth series, the show often focuses on connections between humanity and technology.  The show frequently contemplates the negative impact of excessive or dangerous reliance on technology and warns of the disruptions to people and communities that could result from overly integrating advanced technology into life.

While the most common themes of Black Mirror indeed pertain to traditional risks of overuse of technology, such as data privacy, consent, artificial intelligence, and cybersecurity, there’s an additional layer of commentary on the show which focuses on broader social issues, such as power, community, and justice.  Indeed, the question of how a technologically-advanced society might define and handle justice uniquely is compelling.  Portrayals of justice throughout all four series of Black Mirror include the treatment of issues such as punishment, reparations, confessions, investigations, judgment, and surveillance. 

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Round-up on EPA compliance

This is the sixth in a series of seven posts about regulatory compliance priorities and enforcement trends.  The first post was about the Commodity Futures Trading Commission (CFTC).  The second post was about the Federal Trade Commission (FTC).  The third post was about the Securities & Exchange Commission (SEC).  The fourth post was about the Food & Drug Administration (FDA).  Last week’s post was about the U.S. Department of Agriculture (USDA).  Today’s post will be about the Environmental Protection Agency (EPA).  Finally, the seventh post, on Thursday February 1, will be about the Federal Communications Commission (FCC).

The U.S. Environmental Protection Agency (EPA) is the US regulator charged with supervising and enforcing federal laws concerning human health and the environment.  The USDA was created in 1970 by an order of President Richard Nixon in the course of an executive reorganization that consolidated a number of offices and councils that were created by the National Environmental Policy Act of 1969.  The EPA has never been formally elevated to executive cabinet status but is often accorded this rank operationally anyway. 

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Tony’s Chocolonely and a Roadmap for CSR principles

The chocolate business has long been plagued with associations with slavery and child labor. In the countries where manufacturers buy their cocoa beans, trading companies and farmers traditionally have engaged in exploitative and unfair business practices both between each other and in employing the work of slaves, many of them children. Chocolatiers have even claimed that producing chocolate without the use of slave labor at some point in the supply chain, however remote, is impossible to prove or accomplish. Instead, the industry has focused on shifting risk or responsibility for the use of slave labor or abusive trade partnerships by moving these decisions and relationships to third parties and offering ignorance or lack of control as a defense.

Tony’s Chocolonely, a Dutch confectionary company, offers an intriguing alternative to and challenge within this market. The eponymous Tony is actually Teun van de Keuken, a Dutch investigative reporter. In 2002, van de Keuken was working on a project about chocolate manufacturers. He determined that none of the manufacturers he studied that had signed the 2001 Harkin-Engel (aka Cocoa) Protocol, an international agreement intended to end child and forced labor in chocolate production, were in full compliance with the protocol’s requirements. Therefore, all the chocolate for sale by those candy companies (including Hershey’s, M&M Mars, Nestle, and Guittard) was, in van de Keuken’s view, an illegally-manufactured product.

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Imposters throughout history

Imposters are a fascinating sub-set of fraudsters. Throughout history, individuals who have committed fraud for a variety of reasons – financial gain, social mobility, and even political or corporate espionage – by pretending to be someone they are not. Some of these people are repeat fraudsters, spending much of their lives assuming other identities and committing great amounts of time to working on complex backstories for their false identities, including disguises, accents, and fake community or cultural ties. In order to commit these fraudulent acts, imposters often make deft use of social networks and engineering, by falsely representing themselves in personal or business relationships and then using one misrepresented connection in order to forge subsequent ones.

In this respect, imposter fraud is often the proximate cause of many other types of fraud, creating the trust and credibility that provides access for the faker to commit his or her offenses. Therefore from an ethical culture perspective imposters are quite interesting to study, in order to ponder their motivations or the heuristics and expectations for honesty and evidence that allow their fraudulent efforts to succeed.

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Compliance must-haves for changing organizational culture

The ongoing public disclosures about sexual harassment and abuse that have filled the news since mid-2017 have led to a major cultural reckoning.  Courageous people have come forward to share stories about inappropriate and dangerous behavior of high-profile individuals.  The public discourse about these people who were violated by abusers and predators with the complicity or support of other individuals or organizations has, to this point, focused largely on bringing these offenses to light, in order to listen to and believe in victims, so that they may be supported and empowered as survivors and as bearers of new societal norms.

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