Current and emerging regulations in various fields will test compliance on a larger scale than before
As an example of the increasingly global nature of the mounting burden of regulation, the arrival of the Liberia-fl aged vessel Atlantic Carrier in the Danish port of Esbjerg on 3 September says it all. Shortly after the off shore supply ship docked, officials from the Danish Maritime Authority went on board and asked for the crew’s employment contracts among other items on their inspection list.
When the contracts were produced, it was found they failed to comply with Maritime Labour Convention regulations that had been in force internationally for just two weeks. Instead of issuing a warning to the parent company or taking some other light-handed measure, the authority ordered the boat be detained for 24 hours while the contracts were made fully compliant. Only then was the vessel allowed to head out to the North Sea for duties.
The incident is thought to mark the first time a vessel has been delayed in port because it did not meet the standards required by the convention – and certainly the first time for an employment contract. “It is a significant event for the global shipping industry because it demonstrates that ratifying states are serious about enforcing [the convention] and the rights of seafarers to decent working and living conditions at sea that it enshrines”, says UK-based law firm Ince & Co’s Albert Levy, which has a specialist marine department.
And the event also demonstrates the speed at which regulations, affecting not just the maritime but most other commercial sectors, are hurtling across borders. In the process this trend is imposing governance obligations on many companies that may have a base in just one country but do business abroad. Increasingly, there’s no escape as rules of commercial conduct transcend geographical boundaries in much the same way as do digitally driven communications.
Another lesson of the Atlantic Carrier incident is that officials are far more trigger-happy in applying regulations, regardless of the sector where the breach has occurred. This is particularly true of negotiated regulations with a global reach such as the Maritime Labour Convention, which has already been ratified by states whose flags account for 75% of the world’s gross shipping tonnage. By late September, most Asian and Western countries had embraced the convention, which obliges ship-owners to observe a range of measures relating to seafarers’ welfare including wages and hours of work, accommodation, food and catering, health protection, medical care and social security.
But there is another category of emerging regulations such as those for mobile payments that looks as though it will become an international standard almost by default. With broad implications for the financial and retail sectors, the UK Financial Conduct Authority (FCA) has just set out the blueprint for a revolution in the way we buy and sell. One of the biggest risk-mitigation projects under way anywhere at present, it affects transactions by mobile phones, laptops and other hand-held devices.
The numbers are enormous. According to Gartner Research, the worldwide value of mobile payments, including banking services, will hit $235bn this year, up 44% since 2012. In Asia- Pacific alone it is expected to reach $74bn, up 38%. Indeed, the region is slated to become the world leader in digital payments.
There’s hardly a business that is not affected by mobile payments and the FCA sees significant potential risks. The responsibility for managing them will land right in the boardroom. According to the authority, the dangers lurk in fraud, security, outsourcing (firms will be expected to “monitor service delivery end to end”), education of consumers about how it all works, technology failures and, by no means least, money laundering, especially in the case of cross-border payments. Latin America is seen as a particular hot spot.
Most of the onus of avoiding problems falls on financial firms, but the buck will also stop with any businesses that make mobile transactions. As law firm Field Fisher Waterhouse’s John Worthy points out: “All players in this sector, whether established or new entrants, will need to take note and be ready to demonstrate how their operations are managed to meet the FCA’s expectations.”
In another demonstration of the way that governance increasingly reflects international norms, in September the Australian Stock Exchange (ASX) announced tougher rules on listed companies for mitigating risk. Applying from mid-2014, the rules will require them to disclose how they are complying with a whole range of issues – and, if not why not. Top of the ASX’s recommendations is the establishment of a risk committee, or its incorporation into the audit committee.
As DLA Piper Australia partner Mark Burger points out: “Listed companies which do neither will be required to disclose this fact to ASX and explain the processes they have in place for managing risk.”
But that’s by no means all. Reflecting growing pressure from investors, companies must also reveal their strategy for handling economic, environmental and social sustainability risks. This comes on top of much more detailed reporting to the environmental regulator.
As law firm Clayton Utz points out, the ASX is embedding international practice in its environmental rules. “In reality market-driven environmental and sustainability reporting is already an established practice among the big ASX performers,” it notes in a recent briefing. “With the developing international regulatory environment, the [exchange] is following suit and more detailed environmental reporting will be expected more broadly.”
Other regulators in the region will expect socially responsible management. In the interests of employees, suppliers, consumers and the environment, South Africa, Hong Kong, Singapore and Brazil have all recently introduced reforms under the concept of ‘enlightened shareholder value’.
Finally, intrinsically international obligations such as the Maritime Labour Convention – but many others too – affect not only shipping companies but much of the broader maritime industry in Asia, Europe and the Americas: for example, port companies. “It remains to be seen whether enforcement of the convention will be consistent among ports of ratifying countries, or whether some ports will develop a reputation for more stringent enforcement and others less so,” Ince & Co senior associate Nick Wilcox said.
But in the new and wider world of regulation, port managers will be judged on how they comply too.