Global regulator reviews corporate penalties, seeks more uniformity

HONG KONG Fri Jul 11, 2014 6:42am EDT

International Organization of Securities Commissions (IOSCO) Secretary General David Wright poses before speaking at the Reuters Financial Regulation Summit in New York May 1, 2014. REUTERS/Shannon Stapleton

International Organization of Securities Commissions (IOSCO) Secretary General David Wright poses before speaking at the Reuters Financial Regulation Summit in New York May 1, 2014.

Credit: Reuters/Shannon Stapleton

HONG KONG (Reuters) - A review of government penalties for corporate wrongdoing is being carried out in a bid to make them more uniform globally, a top official of the International Organization of Securities Commissions said.

The review comes amid a growing debate over the size and inconsistency of financial penalties, fueled in recent weeks by the U.S. authorities' move to slap a record fine on French bank BNP Paribas.

IOSCO will establish the key tools–including fines, prison-sentences, and clawing back ill-gotten gains–that deter financial firms from breaking the rules, to help more closely align national regimes, David Wright, secretary general of IOSCO, told Reuters.

He said regulatory deterrents vary too widely across the globe and that a series of recent scandals had highlighted that this had become a really important regulatory issue.

The report is being led by the UK's Financial Conduct Authority and will hopefully be signed off by IOSCO's members during the agency's board meeting in September, Wright said.

Madrid-headquartered IOSCO is an international body comprising more than 120 global regulators. In 2009, it was tasked by the G20 to help implement the global post-crisis reform agenda.

Wright said the different punitive regimes across the world could even encourage regulatory arbitrage, when companies move their businesses to jurisdictions with weaker rules. "We need to start to work on much more effective sanctions regimes and what we call credible deterrents," he added.

Although it has no enforcement powers, IOSCO's guidelines and principles on a range of issues – from benchmarks and exchanges to automated trading– are rapidly becoming the blueprint for regulators across the globe.

The paper will recommend that countries bring their sanctions in line with their peers to remove the incentives for regulatory arbitrage, and will also cover areas such as legal frameworks, judicial competence, whistle-blowing, market surveillance, and powers of investigation.

Wright declined to comment on the BNP case specifically, but said a patchwork of legal regimes would lead to a variety of enforcement approaches. "I think people are beginning to realize that it's not healthy to have different approaches."

The role of financial penalties in deterring corporate malfeasance has become a hot topic during the past year amid criticism that U.S. and European regulators have put too much emphasis on financial settlements alone.

U.S. authorities fined BNP Paribas nearly $9 billion for violating that government's sanctions against Sudan, Cuba and Iran, sparking concerns in Europe that watchdogs in the United States are going too far.

Wright added that among regulators internationally there had been "too little attempt" to pursue corporate executives within institutions. "I think there's a lot of interest now in how we can make the sanctions in general much more of an incentive towards good behavior."

(Editing by Denny Thomas and Jacqueline Wong)