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Across Europe, regulators are more powerful and better resourced than ever, and the obligations facing companies are becoming increasingly complex. Our European Regulatory Risk Awareness Survey canvassed the views of 250 decision makers within the largest European companies across sectors. It reveals that although some businesses are aware of the threat posed by a failure to ensure compliance and manage risk, many are not familiar with the extensive powers of the regulators.
These are the key findings of the report:
Management feels the threat of regulation
40% of respondents think a regulatory investigation into their company in the next year is likely whilst 57% think their industry is likely to be investigated in the next year. 75% of respondents believe that a director's personal exposure to the punitive consequences of regulatory breaches is likely to grow over the next five years and 76% of respondents believe that the risk of criminal penalties for regulatory breaches will continue to grow over the next five years.
Businesses are not managing regulatory risks effectively
Few European companies have in place the key elements that ensure effective regulatory risk management: dedicated teams, compliance programmes, investigation procedures and crisis management plans.
Many businesses are oblivious to US regulators
Although the US Sarbanes-Oxley Act is well known to many respondents not all respondents are aware of the powers of the Department of Justice under the Foreign Corrupt Practices Act and how US law can impact upon European companies.
Prison sentences present a real risk
73% of respondents state that the fear of criminal liability and penalties is important to managing regulatory risk.
Companies fear damage to reputation and brand equity above all else
Businesses across the continent are concerned about the direct and indirect effects of regulatory intervention. 91% of businesses point to the importance of protecting the company name and 85% fear damage to the added value a brand name generates.
Crisis management is deficient in European business
51% of companies have no crisis management plan or do not know of one if a regulatory intervention occurs. Furthermore, many crisis management plans are incomplete. For example, just more than half do not make preparations for competition authority investigations.
Businesses do not understand the powers of regulators
Regulators' powers differ across Europe, so we asked businesses about the powers of their local regulators. Where their financial regulator has the right to search their premises, only 35% of businesses are aware of this and that their local financial services regulator can arrive unannounced and undertake raids. Where local competition authorities have the right to enter by force, 67% of respondents are not aware of this power.
Companies are overconfident but under compliant
Many companies claim to have a highly structured compliance plan, yet 43% fail to review it regularly. Of those that state they are confident in their investigation procedures, only just over half are correctly aware of regulators' investigative powers and more than half don't have the basics in place. They do not sufficiently prepare their frontline staff for an investigation and many do not alert their press office.
For further information about the survey, please contact Neil Gerrard, Joint Global Head of Regulatory and Government Affairs.
Please click on the PDF icons to download a copy of the Survey and Executive Summary.