Costs being incurred from increasing extraterritorial are hampering businesses international growth

Stakeholder buy-in biggest obstacle to embedding risk culture, Marsh

Over half of financial institutions have decided not to enter or have withdrawn from an overseas jurisdiction in the wake of the financial crisis and the resulting increase in overseas regulation.

In a survey conducted by global consulting firm Protiviti, 53% of respondents said that the cost implications involved with ensuring compliance with another country’s laws and regulations had deterred them expanding.

60% of respondents said that they believed that growth in extraterritorial regulation had ‘escalated significantly’ since the financial crisis in 2008, citing US regulation as having the greatest impact.

Over a third (34%) of companies said that more than 25% of their compliance budget is currently being directed towards complying with other jurisdictions’ laws and regulations.

According to Bernadine Reese, Managing Director at Protiviti UK: “With the emphasis in the financial services industry on improving performance and managing costs, extraterritorial laws and regulations are noticeably adding to an already complicated picture. As a consequence, global financial institutions are being forced to re-examine and in many cases significantly change the way they are managing compliance risk”, adding that: “few observers appear to have any expectations that this trend will abate any time soon.”

Whilst 55% of the survey’s participants agreed that some element of extraterritorial application of regulation is necessary and unavoidable, 70% of respondents said they would prefer global standards.

Yet Reese said that such an approach is too simplistic: “While the notion of more global or regional standards is very appealing to the financial services industry, significant questions remain about the feasibility of such approaches when the reality is that national policymakers have differing priorities that may not be reconcilable on a global basis.”