Should a trading company have a compliance function? In other words, should a control unit, independent of operational activities, be put in place? Why invest in such a function, which for many years was considered synonymous with pure additional costs? In the midst of a changing environment, what importance should players of the trading marketplace on fighting corruption, money laundering or on international sanctions?
The Federal Council confirms the pursued approach so far for the commodities trading sector, which is based on preserving the competitiveness and integrity of the Swiss economic and financial center. The competitive advantage means that companies active in trading are not subject to supervision equivalent to that of other economic players, although they face similar risks, as for example financial intermediaries. Even a small asset manager with a client base of ten retired Swiss residents is required to implement a rigorous control framework, unlike a multinational company with transaction volumes of several hundred billion dollars that works with thousands of counterparties worldwide.
Several analyses and reports have been politically mandated, one of the best known being the report that followed the Seydoux postulate aiming at the supervision of commodity trading activities from a money laundering perspective. The results were relatively mixed, and the conclusion remained the same: the current supervision is sufficient, particularly through banks. However, in a society where personal accountability is becoming increasingly important, and in a world where ESG criteria are now scrutinized by the public, the tolerance for error has drastically decreased.
The crisis in Ukraine brought the importance of establishing effective internal control systems back to the forefront. Trading companies found themselves directly confronted with and exposed to massive regulatory measures. The cost of legal advice skyrocketed, and the fear of making mistakes settled in.
By this accountability constraint, some fundamental questions are suddenly surfacing: Are the sanctions lists in use up to date? Who is responsible for downloading and updating them? What sanctions are applicable? Are risks adequately covered? Companies have always proceeded in the same manner, but is it the right way?
It does not appear that these challenges in risk control and governance constitute a temporary occurrence, but rather represent a logical long-term transition. It is up to everyone to think about and objectively assess the risks specific to their own activity, and, if possible, to do so before the next crisis.
