Compliance and Regulatory Risks
Partly stemming from the financial crisis, regulatory requirements and supervision are significantly increasing. Examples are laws and regulations like WFT, Basel III, IFRS, Banking Codes and Sanction Lists, for instance from the US Office of Foreign Assets Control. Regulatory developments are constantly monitored and translated into policies by specialists and a dedicated regulatory working group, which is supported by external specialists when needed.
In order to cover integrity and regulatory risks, FMO has strict legal and compliance procedures to control its business practices. Our risk appetite in this area is nil and FMO does not accept any breach of laws and regulations. If this should occur, immediate remediation and improved controls are mandatory.
FMO’s reputation is an indispensable asset that needs to be protected against damage. We have implemented a Code of Conduct prescribing the behavior of FMO’s staff, which all employees must receive and sign before starting their career with us. In this Code it is stated that FMO employees are not allowed to enter into private investment transactions that have been based on inside information or that could create an appearance of having been based on inside information (further explicitly elaborated in FMO’s ‘Regulation on Private Investments’, which for instance also deals with Closed Periods for possible transactions in FMO shares).
Besides the Code of Conduct, FMO’s values and culture are further discussed during trainings and receive constant management attention. Besides hard controls such as rules and procedures, we believe that soft controls, like tone at the top, exemplifying behavior and open feedback, are of vital importance.
Reputational and compliance risks are also created by FMO’s clients. To mitigate these risks, FMO has, amongst others, a strict Know-Your-Customer and Anti-Money Laundering policy to guide our investment officers. This policy is reviewed on a yearly basis according to changing laws and regulations. Furthermore, FMO’s compliance officers advise on the acceptability regarding all FMO’s clients before a business relationship is established. In the area of compliance risk, continuous awareness and management monitoring are key controls. In 2011 FMO implemented an Anti-Bribery & Corruption policy. In 2012 we conducted assessments on possible situations with relevant sector management and introduced legal clauses for inclusion in client contracts.
To continuously improve awareness throughout the organization, all relevant departments receive annual training and are tested on compliance. Legal risks in transactions are assessed through the use of internal and external legal counsel, from which FMO receives confirmation on the validity of potential transactions between FMO and emerging market clients under local and international laws.