Top Ten Global Compliance Issues for 2011

Sure, U.S. companies will have plenty of pressures to keep their compliance departments busy in 2011—but they'll need to keep a close eye on new regulatory and enforcement plans across Europe as well.

Global regulators, accounting standard setters, and foreign enforcement agencies have a full pipeline of new initiatives, many of which will affect U.S. businesses. Britain is likely to be the most productive source of compliance headaches, lawyers predict, especially with its new anti-bribery laws. Here are 10 overseas issues to keep on the radar.

The Bribery Act. It's been a long time coming, but Britain's new Bribery Act finally takes effect in April. For the first time, companies can be prosecuted for failing to prevent bribery. Just about any business with connections to the United Kingdom could within the jurisdiction of the law: British companies, foreign companies that trade on British exchanges, or anyone who employs a British national. “The Bribery Act 2010 has been described as the Foreign Corrupt Practices Act on steroids,” says John Burbidge-King, chief executive of Interchange, a risk consultancy. Its scope is wider than the FCPA, he warns. Companies face unlimited fines, confiscation orders, and potential debarment from all government contracts in the European Union for up to five years.

Hodges

Call Recording. Starting in November 2011, financial firms operating in Britain will need to record mobile phone calls made by staff working on deals. They will also have to take “reasonable steps” to make sure staff doesn't discuss business on their personal mobile phones. Britain could be just the first European territory to tighten its call-recording rules; the European Union wants to harmonize member states' policy on the issue sometime this year, and could adopt the U.K. standard as its benchmark. “This is an opportune time to remind staff about the use of all electronic medium, including e-mails, landlines, and company phones,” says Louise Hodges, a partner at law firm Kingsley Napley. “Compliance departments will not only need to factor in the recording and storage of such information, but will also need to extend systems to monitor and spot check their use,” she says.

Regulation and Financial Crime. Britain will start implementing its new approach to financial regulation and white-collar crime in 2011. The government's original idea was to create an all-powerful Economic Crime Agency, to assume the Financial Services Authority's prosecution powers in areas such as insider dealing; it would also become responsible for the Office of Fair Trading's cartel-busting work. But the government has since backtracked, announcing in November that it will still create an ECA, but with fewer responsibilities. The U-turn “signed the death warrant on the proposed Economic Crime Agency as originally envisaged,” Hodges says. “It either needs to be a much more ambitious project, encompassing all areas of fraud investigation and prosecution, including tax evasion, cartels, and company offenses—or it should be shelved and additional resources provided to the agencies currently dealing with such matters.”

Plea Bargaining. 2011 could be the crucial year for Britain's efforts to import U.S.-style plea bargaining into fraud and corruption cases. Prosecutors landed their first plea deals in late 2009, but then suffered big setbacks at the hands of angry judges who didn't appreciate their tactics. The Serious Fraud Office is yet to get court approval of its most controversial plea agreement, reached with defense company BAE Systems. If the courts throw the deal out, plea bargaining could be dead in the water. A hearing is imminent. Even if the prosecutors get their way, 2011 is the year when they must show their plea tactics work.

Governance Review. Britain only recently revised its corporate governance code, but the country's whole approach to governance is up for review again in 2011. The new coalition government that took power last year has made corporate law and governance “a priority area” for reform. On its agenda: the role and responsibilities of directors, short-term focus, investor engagement, and the economic case for takeovers. The U.K. model is widely copied around the world, so any changes could have implications elsewhere.

“The Bribery Act 2010 has been described as the Foreign Corrupt Practices Act on steroids.”

—John Burbidge-King,

Chief Executive Officer,

Interchange

European Company Law. Over in Brussels, meanwhile, the European Commission has launched a series of reviews into company law, governance, and auditing after the financial crisis. Through 2010 we saw a raft of consultation papers on new policy ideas; in 2011 more concrete action is likely. In the pipeline are new corporate governance and transparency rules for listed companies and a revised directive on insider dealing. There's a completely new approach to supervising the financial services sector, too.

Class Actions. Class-action lawsuits are rare in Europe, and the European Union wants to change that. In November 2010 it published a proposal on the issue, which closes in February 2011. The Commission wants member states to agree to five “common principles” so it can establish the legal framework needed to make it easier for claimants to bring class actions against companies. Compliance executives should keep the issue under review, says Chris Warren-Smith, a partner at law firm Fulbright & Jaworski.

Insurance Sector. Big changes are in the pipeline for Europe's financial sector. New capital rules are on the way for banks, but insurers face the biggest overhaul in 2011. The new regulatory framework—“Solvency II”—raises the bar on enterprise risk management, internal control, and corporate governance practices. U.S. insurers doing business in Europe will be affected. The compliance deadline is October 2012, but firms will need to start making the required improvements through 2011, says Mike MacDonagh, a product manager at risk software vendor ARC Logics.

Tweedie

IFRS Convergence. The world could take a big step closer to a common set of global accounting standards in 2011, if the International Accounting Standards Board and the U.S. Financial Accounting Standards Board hit their deadline of converging key standards by June. With joint exposure drafts out for consultation on leases and revenue recognition, the two boards achieved a lot in 2010. But the workload for 2011 includes some thorny issues. Among them: financial instruments and fair-value measurement. IASB will have to navigate these tricky waters with a new hand on the tiller; Sir David Tweedie, its longstanding chairman, will step down in June. His replacement, Hans Hoogervorst, has experience in banking and financial markets regulation, but no accounting qualifications per se.

Shareholder Rights. Could 2011 be the year of the shareholder? Institutional investors have been widely criticized for being asleep in the run up to the financial crisis; several jurisdictions have initiatives underway to encourage them to get more active. In 2010, the International Corporate Governance Network called on the leaders of the G-20 Group of Nations to give shareholders greater rights. In 2011 it wants its members to take a bigger role in assessing the effectiveness of boards and in scrutinizing risk management. Britain and South Africa have already launched stewardship codes, which set news standards of behavior and disclosure for big investors. More countries are likely to follow in 2011.