Compliance and Regulation in a Global Context
Domain 1 examines how compliance operates across borders: why regulation exists, how regimes differ, and how global standards and extraterritorial laws interact.
Why regulation exists
Regulation pursues a mix of objectives: market confidence and integrity, consumer protection, financial stability and the reduction of financial crime. Jurisdictions weight these differently - the US leans on disclosure and enforcement, the EU on harmonised rules and passports, the UK on a blend of principles and detailed rules. Match the objective to the regime rather than reciting one list.
Rules, principles and outcomes
A rules-based regime is prescriptive and predictable but slow to adapt and easy to arbitrage. A principles-based regime states outcomes and relies on judgement: flexible, but harder to enforce consistently. Most modern regimes mix both - detailed rules for high-risk activities, principles for conduct, and outcome-focused requirements such as product governance and treating customers fairly.
The global architecture
Know who does what. IOSCO sets securities objectives and principles; the Basel Committee sets prudential banking standards; FATF issues the 40 Recommendations on AML/CFT and runs mutual evaluations; the FSB coordinates stability policy; ESMA, EBA and EIOPA are the EU supervisory authorities. None legislates directly - implementation runs through national law and peer pressure. The Wolfsberg Group is private-sector, not a regulator.
Extraterritorial reach
The US Foreign Corrupt Practices Act reaches issuers and acts in furtherance of bribery in US territory, and imposes books-and-records and internal-controls obligations. UK Bribery Act 2010 section 7 creates a strict corporate offence of failing to prevent bribery by an associated person, with only an adequate procedures defence, applying to organisations carrying on business in the UK wherever the bribery occurs. OFAC sanctions reach US persons and USD flows. Equivalence is unilateral recognition; passporting is mutual recognition inside the EEA.
Worked example
A UK asset manager's Dubai branch pays a government official to win a mandate; the group is US-listed. UK exposure arises under Bribery Act s.7 because the UK entity carries on business in the UK and the employee is an associated person; the only defence is adequate procedures. The US parent faces FCPA books-and-records and internal-controls risk for its subsidiary. UAE law also applies. Group-wide anti-bribery controls, third-party due diligence and expense monitoring must cover every subsidiary, not just the home entity.
Traps that cost marks
Assuming home rules stop at the border; treating IOSCO principles as binding; confusing FATF, Basel and IOSCO mandates; forgetting that facilitation payments are illegal under the Bribery Act but have a narrow FCPA exception; confusing equivalence with passporting.