Key Governance Developments - June 2019

Directors under pressure across Europe over Governance failures and culture problems

The UK's Financial Conduct Authority says it is currently investigating 58 directors of financial companies, more than double the number two years ago, with almost half of the cases involving suspected failings in non-financial areas encompassing culture and governance, such as failure to take action over allegations of sexual harassment, homophobia and bullying. Meanwhile, one of Germany's biggest asset managers has criticised corporate governance at Europe’s largest companies, saying none of the constituents of the Stoxx Europe 50 fully meet Union Investment's criteria for independence of their supervisory boards, transparency, diversity and director pay. And it's not only Donald Trump whose tweets have attracted critics' ire - Spain's financial regulator is investigating Santander CEO Ana Botín over tweets that might have moved markets in mid-negotiations on a rescue deal for a struggling supermarket group.


UK regulator steps up investigation of directors’ failings on culture and governance

The UK's Financial Conduct Authority is investigating 58 directors of financial companies, more than double the number two years ago, with nearly half of them under scrutiny for non-financial failings in culture and governance. The regulator is seeking to put pressure on executives and directors at financial institutions to take action in the wake of allegations of sexual harassment, homophobia and bullying. Accountability rules will be rolled out toward the end of this year, and groups could face fines for failing to meet diversity targets.

Best source: Financial Times (subscription required)


Belgium extends list of entities targeted by ‘Cayman tax’

The Belgian government has approved an extended list of offshore entities to be targeted by the country's so-called Cayman tax if Belgian residents are founders or shareholders. Added to the list are all closely-held Ucits funds that pay less than 15% of their income in tax, and hybrid entities, apart from EEA-based structures that are subject to a foreign tax rate of at least 1%. A total of 66 types of non-EEA structures, including Jersey, Monaco and Swiss foundations, are already targeted by the tax on offshore legal entities, which was established in 2015 and strengthened last year.

Best source: Baker McKenzie

German asset manager criticises governance at European blue-chip firms

Union Investment, Germany’s third largest asset manager, has criticised corporate governance at Europe’s largest blue-chip companies through a ranking of the constituents of the Stoxx Europe 50 equity index. None of the companies making up the index fully met the fund group's criteria for the independence of their supervisory boards, transparency, diversity and director pay.

Best source: Financial Times (subscription required)


European institutions complain of little benefit from MiFID II

European banks, securities exchanges and fund managers complain that the costly implementation of MiFID II, which was conceived after the financial crisis but took effect only last year, has brought them little benefit so far. The total collective cost to the industry is estimated at more than €2.5bn, plus annual compliance expenditure of €700m, but industry members say trading has become less transparent rather than more. Bank and trading executives say poorly-worded rules undermine some of the legislation's key objectives.

Best source: Financial Times (subscription required)


UK overseas territories top corporate tax avoidance jurisdictions: lobby group

British overseas territories occupy four of the top 10 places in a ranking of the world’s biggest facilitators of corporate tax avoidance compiled by the Tax Justice Network lobby group. The organisation argues that the UK, through its network of corporate tax havens, bears a major responsibility for the breakdown of the global corporate tax system, which it claims deprives governments of around $500bn of revenues annually. The British Virgin Islands, Bermuda and the Cayman Islands top the ranking, which is based on jurisdictions' use of tax cuts, loopholes, secrecy and other means to attract multinationals' business. The other members of the top 10 are the Netherlands, Switzerland, Luxembourg, Jersey, Singapore, the Bahamas and Hong Kong, with Ireland 11th and the UK itself 13th.

Best source: The Independent

See also: Sky News

See also: Cayman Compass

Global fund groups apply for MiFID licences to counter no-deal Brexit risk

The regulatory authorities in Ireland and Luxembourg have granted enhanced authorisation to enable UK and US asset managers to establish investment operations in their jurisdictions as part of preparations for a possible no-deal Brexit. The move could risk the loss of portfolio management business from the UK and further undermine the country's role as Europe's dominant financial jurisdiction. Global asset managers are applying for licensing under MiFID II to allow them to provide EU institutional clients with segregated mandates, including so-called MiFID top-ups for management companies in Luxembourg and Ireland, authorising the entities to conduct portfolio management and trading.

Best source: Financial Times (subscription required)

Spanish regulator investigates Ana Botín tweets over retailer financing deal

Spain's Comisión Nacional del Mercado de Valores is investigating a series of tweets by Ana Botín, CEO of Banco Santander, regarding the last-minute refinancing of Dia, a struggling supermarket retailer. A first tweet from Botín criticised a proposed deal that she said would have favoured bondholders over banks. Then she tweeted shortly afterward that an agreement had been reached. The tweets were made during market hours and could have affected the prices of securities related to Dia.

Best source: Expansión (in Spanish)

EU cyber-security directive adopted into Luxembourg law

Luxembourg's Chamber of Deputies has transposed into domestic law the EU cyber-security directive, which requires businesses to take steps to protect their IT systems and formalises reporting procedures. The CSSF is the designated authority for the financial sector, with the Luxembourg Regulatory Institute responsible for other sectors, including energy, transport and postal services. The legislation was approved unanimously by parliament.

Best source: RTL (in French)

See also: RTL


Information and security officers to demand increased cyber-security investment

Some 73% of chief information and security officers at financial institutions worldwide intend to request increased cyber-security investment over the next year, according to a survey by the US-based Financial Services Information Sharing and Analysis Center. According to more than half of the 301 executives polled, 10% or less of their organisation's budget is earmarked for cyber-security.

Best source: Finextra


UK plans company register overhaul to curb money laundering

The UK's Department of Business, Energy and Industrial Strategy is planning the biggest overhaul of the country’s official corporate register in 170 years, following allegations that British companies are being used to launder money. Companies House, whose register contains more than 4 million entities, will be given increased power to check information including the identity of individuals setting up companies and their beneficial owners, as well as receiving extra staff and financial resources.

Best source: Financial Times (subscription required)