APPROPRIATE COMPLIANCE PROCEDURES IN UNPREDICTABLE AND OPAQUE MIDDLE EAST JURISDICTIONS

Certainty is the cornerstone of compliance. In order for commercial banks, investment banks, asset managers and other financial institutions to comply with the laws and regulations of the jurisdictions in which they are operating, they need to have a full and thorough understanding of the legal regime and applicable regulations in such jurisdictions. This becomes a tall task in many frontier and emerging markets, particularly in Middle East jurisdictions, which are frequently overhauling banking, securities, and compliance regimes or operating on an unwritten or case-by-case basis. Financial institutions are regularly presented with situations where they are in compliance with all written regulations, yet are still deemed non-compliant or are being prohibited from taking actions which are seemingly legal.

Often, such contradictions arise from government and regulatory authorities being understaffed and under-resourced or employees being under-qualified to comprehend complex financial transactions. On other occasions, regulatory agencies are projecting power and seeking to force policy in the jurisdiction in a certain direction. Regularly, financial institutions confront regulators and government agencies which are simply acting in bad faith to punish institutions (or their shareholders), protect or advance the interest of the local population or powerful individuals or seek their own gains by ignoring or contravening existing legislation. Almost universally, the rationale and decision-making processes behind such choices are opaque, leaving these institutions grasping for answers to tough questions. Should they reapply to the applicable regulator or government body? Should they pursue their goals through other channels? Should they abandon the specific goal and avoid interactions with the applicable regulator and government agency? Should they withdraw from the difficult jurisdiction all together?

Oct-Dec 2014 Issue

King & Spalding