In a previous blog we provided a summary of what shareholding disclosures are; now we will explain why these matter to your firm. The “in a nutshell” answer is sanctions! Having worked in the financial industry managing this process myself I have seen the pain that firms suffer with sanctions for incorrect or late disclosure filings, where they not only have a regulator breathing down their neck but all the attention of senior management who want to know what/where/why and who’s head will roll.
Sanctions in the shareholding disclosure world are often a result of simple human error, a manual process, or a lack of resource or a combination of all three! In such a complex world, where so many things can go wrong, there are some very serious sanctions. Across Europe the Amended Transparency Directive suggested non-compliance should result in fines of up to 10m euros or 5% of annual turnover, suspension of voting rights and public statements. There are even more serious sanctions, for example, in Switzerland, Vietnam, Hong Kong, Belgium, Israel, and Japan where non-compliance is a criminal offence.
Why is this significant?
Being publicly sanctioned can cause significant reputational damage to your firm and this is something that many financial institutions try hard to avoid. Whilst there are some significant fines that have been reported in the media for breaches of shareholding rules many sanctions occur behind closed doors, therefore the real number of those who have been subject to penalties is not in the public domain.
In my 13 years working in Compliance within the financial industry I have dealt with a number of regulators regarding sanctions, I have fought against the removal of a Head of the Compliance department’s passport by the Vietnamese regulator, have been interviewed by investigators and lawyers and have been in the uncomfortable position of reporting on these censures to Boards of Directors. These sanctions are not uncommon across the financial industry; I have spoken to many peers at industry meetings or socially where we shared our woes of facing off to a regulator.
Although some regulators have more punitive sanctions others require very strict compliance to their rules and regularly censure and it’s those regulators that cause firms the most concern. Some regulators make use of these sanctions more often; for example, the German regulator, BaFin, is renowned for fining for some of the smallest of issues.
Whilst on occasion incorrect disclosures may be the result of some fraudulent activity, more often than not they are a result of lack of resource, difficulty in interpreting the rules, lack of understanding of the derivative products and the data, a lack of automated processes and the result of manual error. I left the financial world to design and build a solution for the industry to solve the many issues faced when trying to comply with the hundreds of global shareholding rules. Whilst it may be impossible to avoid every sanction, if you can automate your disclosure process you can reduce significant risks; key-man, human, resource, operational, data and market.
Our SDS Service
Kaizen’s Shareholding Disclosure Service “SDS” allows you to automate a process that is incredibly complex. If you try to manage this process manually then there are number of issues you will face:
- A lack of in house knowledge of the rules globally
- applying complex rules that are different across each of the 95+ jurisdictions
- ensuring each rule has its own calculation methodology (which products you include, exemptions, various holdings capacities, different denominators etc)
- manually calculating a holding / calculation error
- tracking and updating these rules
- alerting users to disclosures
- managing internal data and market data
- late disclosure
- management oversight
All of the above opens a firm up to the risk of getting it wrong and left facing sanctions. Kaizen’s SDS uses aosphere LLP’s (an affiliate of Allen & Overy LLP) shareholding disclosure rules library as a basis for the service and further enhances and interprets this with our regulatory expertise to apply the rules to a firm’s specific business model. This can help a client where this kind of expertise may be absent within their department. Automated processing of data files against these rules means that calculations are consistent, easily updated and are calculated quickly. Users are immediately alerted to a disclosure that requires filing and automated disclosure forms means there is no room for manual error. In addition, the user interface is packed full of useful tools to ease the process and make it as simple as ABC, protecting you and your organisation from these sanctions.
- Please contact us if you would like to learn more about our Shareholding Disclosure Service.