Have EU derivative policy reforms since the 2008 financial crisis been designed effectively?

Purpose In response to the 2008 financial crisis, the European Union (EU) comprehensively restructured its derivative regulation. A key component of this new framework is a reporting obligation for every derivative trade. As the reporting requirement does not involve public disclosure of the information, existing academic analysis on reporting regulations to-date, which focusses on public disclosure, is limited in predicting the effectiveness of the reform. This paper aims to assess whether the reform has been designed effectively based on the regulatory setup in the UK. Design/methodology/approach Framing the reporting regulation as a moral hazard problem with asymmetric information, this paper uses a game-theoretical approach to evaluate whether the new derivative reporting obligation effectively induces firm compliance. I also discuss potential extensions of the derivative reporting model, with particular emphasis on how the framework could account for heterogeneous firms and different regulatory tools. Findings Based on the theoretical analysis, this paper finds that while firms are unlikely to comply fully with derivative reporting requirements, it is possible to induce relatively high firm compliance. Although this does not mean we are immune from another financial crisis, the derivative reporting requirements should equip EU regulators to monitor a more transparent and secure derivatives market. Originality/value This paper provides a theoretical foundation for further study of post-crisis derivatives reforms. In particular, the implications of the model point to an empirical strategy to test the accuracy of the model.

Assessing the Impact of Changes to CG Codes on the Financial Performance of UAE Firms

This study undertook a comparison of the changes to corporate governance (CG) practices, based on the UAE CG codes, for three different periods of time between 2006 to 2007, 2009 to 2010 and 2013 to 2014. An ordinary least squares model, along with analysis of variance testing, was employed to compare this. The study sample included 47 listed firms in the UAE. The changes made to the CG code during the study period affected the audit and board committee characteristics. The results show that the second CG code change had the most significant effect on board meetings, board members’ education, board members’ experience, audit committee meetings and audit committee members’ education impact on the financial performance of UAE listed firms. The potential policy implications arising from the study centre on ensuring greater firm compliance to meet the expectations of the regulatory body, as mandated in the CG code.

Calculating Corporate Compliance & The Foreign Corrupt Practices Act

Technology is rapidly disrupting every industry and institution around the globe. Yet, corporate compliance has remained relatively unaffected by technological change when compared to other industries. If firms continue to lag behind in their compliance efforts, their risk exposure to the potentially lethal sanctions associated with major compliance failures will continue to increase with time. This is particularly true in the context of the Foreign Corrupt Practices Act. Generally, the Foreign Corrupt Practices Act (“FCPA”) is a regulatory statute that forbids bribery and false accounting for domestic firms doing business abroad. And, in the past decade the DOJ and SEC have begun aggressively enforcing the FCPA. Firms should begin using technology to develop more robust and cost-efficient compliance programs to insulate themselves from the FCPA’s harsh penalties. This Article provides an algorithm that allows firms to evaluate and improve their compliance programs in accordance with several published sources of guidance. Compliance scholars have made clear that it is critical for firms to maintain strong corporate compliance programs and have suggested different models and frameworks for internal evaluation and auditing. However, those suggestions fail to consider how technology may be used to improve the cost-efficiency of corporate compliance and ethics programs. This Article takes an informatics-based approach to evaluating and improving firm compliance by focusing on the most important compliance functions according to the Department of Justice (“DOJ”), courts, and other Government actors. Indeed, firms may drastically improve the cost-efficiency of their compliance efforts by adopting the analytical framework proposed in this Article.

Delayed Adoption of Rules: A Relational Theory of Firm Exposure and State Cooptation

The state creates and changes rules that coerce firms, but firms can delay or decouple responses to rule changes to manage the cost of demands. Theory of compliance to the state has not yet considered the degree to which the firm can delay adoption because of low exposure to rules and state links that allow cooptation, but both of these relations between state power and firm ability to counteract it can affect the adoption decision. This makes the response to state rule changes a more strategic outcome than the theory of coercive isomorphism implies. We develop a relational theory of delayed firm compliance to a state rule change that considers firm exposure due to discrepancy from the rule and firm cooptation of the state due to state links, and we test the theory by examining the adoption of the split-share structure reform, a state-mandated corporate governance reform among listed firms in China. We find that exposure and cooptation influenced the speed of adoption and the decoupling from reform intentions. We also found that their effects on firm response to coercion weaken when the new rule becomes institutionalized. Our theory of delayed compliance is also likely to apply to coercive pressure from other powerful organizations than the state.

FINRA 2015 regulatory and examinations priorities

Purpose – To summarize the Financial Industry Regulatory Authority, Inc. (“FINRA”) 2015 Regulatory and Examinations Priorities Letter. Design/methodology/approach – Provides a brief summary of the general compliance and supervisory challenges described by FINRA. Highlights key sales practice concerns raised by FINRA. Briefly summarizes FINRA’s 2015 key financial and operational priorities. Summarizes FINRA market integrity focuses for 2015. Encourages firms to consider the FINRA 2015 regulatory and examination priorities alongside the Securities and Exchange Commission (the “SEC”) examination priorities for 2015 as they review their policies, procedures and business activities. Findings – FINRA’s 2015 Regulatory and Examinations Priorities Letter focuses on: key areas FINRA has observed contributing to member firm compliance and supervisory deficiencies, its observation of an increase in firms failing to file timely responses to information requests in connection with examinations and investigations, key sales practice issues, financial and operational issues, and market integrity matters. Practical implications – Firms should review these priorities alongside the SEC’s examination priorities for 2015. Where firms observe deficiencies in their own practices, adjustments should be made before they find themselves the subject of a FINRA or SEC investigation, examination or enforcement action. Originality/value – Practical explanation by experienced financial services lawyer.