REGULATORY CHALLENGES FOR FINANCIAL INSTITUTIONS OPERATING ACROSS MULTIPLE JURISDICTIONS

Financial institutions operating across multiple jurisdictions face a myriad of regulatory challenges, including those arising from differences between regulators in: (a) the substance of their laws, regulations and techniques of legal reasoning; (b) regulatory style; (c) procedures adopted, for instance differences in their investigatory powers, and divergent approaches to legal privilege; and (d) cultural norms.

These challenges can be compounded by the corporate structure of the financial institution, whether it operates through branches or subsidiaries, and by the team structure and reporting lines, which may not always lend themselves to the efficient resolution of issues that arise. There are also practical challenges common to any global business—for example, language, geography, local working practices and political landscapes. Challenges are most acute when the financial institution is facing litigations, investigations and/or enforcement actions, but can occur in any circumstance where the head office engages with local regulators or with its local offices on regulatory matters.

It can be difficult for both head office and local offices to navigate these problems:

• Regulators in the home jurisdiction do not necessarily interact smoothly with host regulators, and ensuring the appropriate sequencing and coordination of communications can be demanding;
• In some instances, particularly those involving high profile issues with particular significance to domestic audiences, regulators may be competing with one another to establish jurisdiction and achieve outcomes;
• The local office may have good regulatory relationships in its jurisdiction, but can be too far removed from head office to understand all of the dynamics affecting the head office;
• Local governance requirements may adversely impact the ability of head office to manage problems;
• Local legal obligations and restrictions may hamper the sharing of information.

Senior management and boards of directors of the financial institution may be facing issues with which they are unfamiliar—and in legal jurisdictions with which they are inexperienced.

The solution to these issues lies in:

• Ensuring the right legal and regulatory expertise is present in all relevant jurisdictions
• Taking a holistic approach to problem management and resolution, including:
  • ensuring appropriate sharing of information, insofar as that is possible and desirable, with all regulators involved;
  • appropriate sensitivity to the needs of the home and host regulators;
  • awareness of demands of other stakeholders, such as the public, press and investors;
  • robust and proactive planning and stress testing of scenarios; and
  • awareness of and parallel preparation for potential civil, criminal and regulatory liability within the relevant jurisdictions and abroad, as well as other collateral events;
• Applying particular sensitivity to cultural and political differences
• Ensuring the views and needs of all involved parties are properly considered, including regulators, business, counsel and others
• Appointing a lead law firm to coordinate analysis and resolution of strategic and legal issues.

Shearman & Sterling offers:

• Expertise in every key financial center jurisdiction, and beyond that through an extensive network of collaborating local law firms
• Long-standing pre-eminent global financial institutions know-how
  • Understanding the global regulatory environment for financial institutions;
  • Understanding the intersection between multiple internal and external stakeholders (e.g., credit and risk, finance, press, investor relations, HR);
  • Personnel include ex-regulators and prosecutors, as well as former senior employees from major international banks;
  • Deep expertise in litigation, investigations, contentious and non-contentious regulatory matters, competition law, GDPR and other data-related matters, employment law, reputation management and so on;
  • Extensive experience providing strategic advice to senior management and boards of major U.S., Canadian, South American, European, Asian and other financial institutions worldwide in significant investigation and enforcement matters, frequently with cross-border components;
  • Track record of providing extensive guidance to non-U.S. entities as to the nature and expectations of dealing with U.S. authorities - and similarly for U.S. entities in relation to U.K. and EU authorities; and applying appropriate governance for major matters as well as helping to bridge the cultural gap between U.S., European and rest-of-world practice and norms.