Opening this important EU compliance conference, Dutch Authority Financial Markets (AFM) Executive Board Chair Laura Van Geest became the first attendee to ever quote Monty Python’s Life of Brian, invoking the compliance risk and legal attendees to look beyond the doom and gloom in the geopolitical and macroeconomic world. “If life seems rotten, there’s something you’ve forgotten, and that’s to laugh and smile and dance and sing” she said, encouraging everyone to look beyond Covid, inflation, war, energy prices, the UK mini-budget debacle and the nitrogen debate in the Netherlands.
She stressed that compliance and legal personnel had a moral duty to be optimistic and to take action, as there is not only the duty to protect as supervisors at a regulator level, but also the same duty in regulated firms in each line of defence.
Opportunities ahead
Van Geest continued the light tone by addressing sustainability and the joys of ESG compliance. She highlighted the opportunities that are evident to financial companies in this new strand of investment but warned of the risks of greenwashing. She said that the Sustainable Finance Disclosure Regulation is the north star to help firms navigate the complex road ahead.
The AFM will focus heavily on marketing information used by firms – it must be accurate, clear and not misleading, she said, adding that it is obvious that the move to net zero is not happening fast enough. The focus on MiFID II and the IDD will continue to be the driver in the next two years. Product manufacturers and distributors are now obliged to consider customer sustainability preferences as part of the sustainability assessment. She recommended that firms do not deliver a half-baked outcome. Those firms that do it properly will stand out.
Data collection and processing is at the heart of financial services. But there are risks with the exponential rise in use and creation of data.
Moving on to digitalization Van Geest stressed that data collection and processing is at the heart of financial services. But there are risks with the exponential rise in use and creation of data. It must be well handled by firms, securely held and protected from cyber threat.
Vulnerabilities here include the use of algorithms and the understanding of their operation. She suggested that firms need to invest in experts in these areas and be prepared to stretch beyond their usual comfort zones. Good risk management is necessary here and the progress in formal regulation of the application of artificial intelligence will also help considerably.
Supervisory cooperation
She shifted to internationalization where there are even better opportunities but also risks. Good supervisory cooperation among national regulators will reduce the temptation and ability to perform regulatory arbitrage. The leaning towards supervisory convergence will result in an equivalent regulatory playing field country to country.
More meetings and discussion will increase learning among regulators. Convergence is necessary to tackle cross-border risks – the regulation of credit rating agencies is a great example of this where Europe’s groundbreaking approach has spawned the debate on whether this is best done centrally by ESMA or at national level by 27 separate supervisory authorities. Cost and quality are the appropriate considerations here.
Bright side
She finished her keynote with a statement that regulatory supervision is not a game that those affected by it should seek to master. Firms must respect the spirit of the regulation and work together with their regulators to achieve a safer and more efficient market. Working together will bear the right fruit. And to keep the session upbeat, she quoted Monty Python again – “always look on the bright side of life”.
This is not a complete reproduction of what was said at this conference – it is an edited version based on the reporter’s understanding of what was relayed. This content has not been approved/endorsed by the speakers.
