Cedric Cordenier

Cedric Cordenier 

Posted Wednesday May 6, 2015

3 things compliance professionals need to know about the UK general election

3 things compliance professionals need to know about the UK general election

Big Ben Image credit: UK Parliament/Stephen Pike. Parliamentary copyright images are reproduced with the permission of Parliament.

Tomorrow, people across the UK will go to the polls to vote on a new parliament. Throughout the election campaign, the economy and corporate governance have been key themes.

Elections are always a compliance challenge because they lead to changes in the makeup of government. Existing customers of financial institutions may gain political exposure overnight or acquire prominent positions in government, so it is important to ensure internal lists are updated.

Here are three ways that the UK election could change the compliance landscape.

1. With an election comes new PEPs

Although political candidates are not typically considered politically exposed persons (PEPs), elected officials are. General elections are an opportunity for financial institutions to get ahead of the curve on compliance by screening against candidate lists to identify potential new PEPs.

The higher levels of media scrutiny around political candidates may make it easier to identify relevant risk factors. Last year’s election in India - which focussed on corruption as a major topic - for example saw a number of corruption or bribery allegations levelled against prominent politicians, including the former chief minister for the state of Karnataka.

In other jurisdictions where politicians benefit from legal immunity, election season can result in a flurry of legal actions against politicians who are leaving office. Following the 2007 gubernatorial elections in Nigeria, the national Economic and Financial Crimes Commission filed a number of charges against former state governors who were standing down and no longer shielded from prosecution, culminating in the arrest of James Ibori, the former governor of the oil-rich Delta State.

The promise of political power can also drive bribery and corruption. In the US, former democratic senator Malcolm Smith was found guilty in February 2015 of bribing the Republican selection committee in order to be accepted as a mayoral candidate for the city of New York.

2. British tax havens forced into UBO disclosure

Corporate governance has been a key theme of this election. A significant development on this front took place at the end March 2015, when a bill providing for the creation of a register of ultimate beneficial ownership (UBO) was passed into law. But the effect of this bill may be bigger on overseas territories, as British politicians issued pre-election pledges to crack down on tax havens.

The current coalition has asked the British overseas territories - which include offshores like the Cayman Islands and Virgin Islands - to publish plans to create their own public registers by November 2015. So far, this has faced stiff resistance. The Cayman Islands’ financial services minister, for example, argued against such a move after a consultation revealed an overwhelming majority of companies were against establishing a public register.

Meanwhile Ed Miliband, the Labour party leader, has warned overseas territories that he would give them six months to establish public registers. With political and public pressure mounting, offshore financial centres may have little choice but to relent to these demands.

3. Harsher penalties for economic crimes

Following the Libor and other financial scandals, there is a consensus among mainstream political parties on the need to tackle financial crime. The manifestos of the Liberal Democrats and Conservatives both include measures to criminalise the failure to prevent economic crimes, with the Liberal Democrats suggesting that directors could face jail time.

Similar policy pledges have also been voiced by the Labour and Green parties. In 2012, Labour’s Yvette Cooper, mooted a potential Economic Crimes Act, though there was no mention of it in the final manifesto. The Green party states a commitment to ‘proper and robust prosecution of those who commit financial sector and banking fraud and participate in the mis-selling of financial products.’

Although the outcome of tomorrow’s election is on a knife-edge, there are likely to be important changes to corporate governance legislation in the months to come. It remains to be seen however whether corporate governance will be an issue in any potential coalition negotiations.

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