A group of 31 MPs from across the political spectrum have called on the Government to protect consumers from unsafe carbon monoxide alarms, which fail to comply with the industry wide safety standard BS EN 50291. 

A recent investigation by the consumer right group Which? found that many alarms bought in the UK, online, fail to comply with the BS EN 50291 safety standard, which means they can leave people at risk of carbon monoxide poisoning even if they have an alarm.

In response to the findings, Jim Fitzpatrick MP tabled a motion in Parliament calling for Government to take action. The Early Day Motion has been signed by 31 MPs, including Labour, Conservative, SNP and SDLP members.

The EDM says: “That this House notes with concern that a recent investigation by the consumer group Which? found that there are carbon monoxide alarms available to buy online in the UK that are not compliant with the BS EN 50291 industry safety standard; further notes that such noncompliant alarms can fail to detect dangerous levels of carbon monoxide, leaving consumers with a false sense of confidence and thus exposing consumers to the risk of carbon monoxide poisoning; notes that eBay, Amazon and Robert Dyas have all taken positive steps to remove dangerous carbon monoxide alarms and detectors from their product lines; and calls on the Government to ensure that all carbon monoxide alarms on the market in the UK are compliant with the BS EN 50291 standard.”

Jim Fitzpatrick MP said: “As a former firefighter, I am all too aware of the devastating impact of carbon monoxide poisoning. It is a silent killer. You can’t see it, smell or taste it, but it can kill without warning. Installing a carbon monoxide alarm could save your life, and compliance with the standard will ensure that consumers aren’t being put at risk by dodgy devices.”

Independent tests by Which? found that alarms claiming to meet the safety standard were, in fact, not compliant. Alarms produced by leading brands, however, passed every one of the group’s 312 gas detection tests.

Chair of the All-Party Parliamentary Carbon Monoxide Group, Barry Sheerman MP, said: “It is fantastic to see so much support for action on this important issue. Carbon monoxide is an insidious killer, and market wide compliance with the industry safety standard would add a vital extra layer of protection for consumers.”

The Bar Council has warned that the UK economy and London’s position as the leading centre for dispute resolution will suffer if Brexit negotiations do not ensure that UK court judgments are enforceable in EU Member States, once Britain leaves the European Union.

In written evidence to the Commons Justice Select Committee, published today, the Bar Council said:

 “In a globalised world, it is crucial that the judgments of one state are enforced by the courts of another.

“It is critical that UK citizens, businesses, institutions and the UK Government retain the right to have judgments which they have obtained in the UK courts efficiently enforced, and to have the jurisdiction of the UK courts recognised, throughout the EU.

“This is also essential in order to retain our position as the leading dispute resolution centre in the world, with the important economic benefits which this brings.

“These mechanisms are vital for the healthy functioning of the UK economy in general and the UK legal sector in particular.”

English law is the most commonly used law in international business and dispute resolution and is the main choice of law for commercial contracts, but the Bar Council has cited anecdotal evidence that some international parties may already be choosing not to use English jurisdiction clauses.

The Bar Council evidence said:

 “Anecdotally, the Bar Council has heard of a number of cases where parties are being advised not to choose English jurisdiction clauses in their contracts because of the uncertainty surrounding the jurisdiction and judgments regime.

“Much international dispute resolution work comes to English lawyers because the parties to a dispute have chosen to have their dispute resolved in the English courts. If jurisdiction clauses designating the English courts are not effectively respected in the EU, this will make such clauses considerably less popular.”

There has been much media and parliamentary scrutiny recently of Taylor Wimpey’s policy to include 10-year doubling ground rents on new build leasehold properties. A number of Taylor Wimpey’s ex-customers are considering legal action against the conveyancing solicitors who acted on their behalf, as they feel conned by the lease terms and claim their properties are now unsellable.

Louie Burns, Managing Director of leasehold enfranchisement specialists Leasehold Solutions, argues that the legal profession should brace itself for a wave of litigation from home owners who feel they were given inadequate advice by their conveyancing solicitors or valuers.

Burns said: “The case of Taylor Wimpey highlights an endemic problem with new build property in the UK, as more and more house builders are including onerous ground rent schedules on new build leasehold properties. Recent legislation, including the Disclosure Act (2014) and the Consumer Rights Act (2015), gives home owners the opportunity to seek legal redress against solicitors for professional negligence, where they can prove they were not given adequate information to make an informed decision.”

The Consumer Rights Act specifically mentions that complex future financial implications must be spelt out very clearly, and warns against confusing wording around these issues. If the advice or terms offered by solicitors were found to have been obfuscated then the legal firms involved would be open to a legal challenge by the consumer. This represents a significant shift from the previous accepted consumer law concept ‘buyer beware’.

Burns continued: “What would qualify for professional negligence in these cases is the lack of written advice on the serious future financial implications of the terms of the lease in question, namely the onerous ground rent schedules; where this isn’t evident the solicitor may be held to account.

“The Taylor Wimpey case is just the tip of the iceberg; this issue is on a scale akin to the PPI scandal which has dogged the banking industry for nearly a decade.”

“The cost implications can be huge for an errant solicitor (or valuer) but each case is different. In a recent example, home owners won their case by demonstrating the implications of the ground rent increases were not adequately explained, leading to a settlement which imposed an average of £17,000 in costs for each law firm involved. On a more complex case it could be much higher.”
Research by Leasehold Solutions suggests that around 80% of new build flats are sold with onerous ground rent schedules included in the lease terms. More than 42,500 new build leasehold properties were sold during 2015.

Taking the average costs from Leasehold Solutions’ recent example, the company has estimated that the cost to the legal profession from professional negligence claims could reach £578 million for 2015 alone.

Burns concluded: “From a risk point of view, all those involved in the marketing and sale of leasehold properties, both new build and existing homes, must now review the way they present advice to their clients, to ensure they do not return at a future date to seek legal redress.

“In order to achieve the openness and transparency required under the Consumer Rights Act, conveyancing solicitors must ensure that the lease terms are expressed fully, clearly and legibly, containing no concealed pitfalls or traps.”

(Source: Leasehold Solutions)

New risks such as cyber incidents or data privacy, rising regulator and shareholder activism and the influence of third party litigation funders are putting corporate leaders under more pressure than ever of falling foul of investigations, fines or prosecution over alleged wrongdoing, says Allianz Global Corporate & Specialty (AGCS), a leading provider of Directors and Officers (D&O) insurance globally.

Directors and officers are walking a managerial tightrope as executive liability continues to increase annually. There is a growing trend towards seeking punitive and personal legal action against executives for failure to follow regulations and standards which could result in costly investigations, criminal prosecutions or civil litigation putting the company’s assets, or their own, at risk, AGCS says in its new report D&O Insurance Insights: Management liability today. “While the legal landscape differs strongly from country to country, increasing shareholder or regulatory action has become a global phenomenon that needs to be given top priority within companies’ internal risk management departments,” says Bernard Poncin, Global Head of Financial Lines, AGCS.

D&O litigation – lengthier and more costly
According to AGCS analysis, non-compliance with laws and regulations is now the top cause of D&O claims [1] by number, followed by negligence and maladministration/lack of controls. The average D&O claim for breach of duty costs over $1 million (€1 million). However, in large corporate liability cases D&O claims can be valued in the hundreds of millions of dollars. AGCS observes a general trend for D&O claims to be dismissed or resolved more slowly, meaning lengthier litigation, increased defense costs and higher settlement expectations. For example, the average US securities class action case takes between three and six years to complete while legal defense costs average around $10 million, rising to $100 million for the largest cases. In the past six years defense costs have almost doubled for large D&O claims in the US. The influence of third party litigation funding is also changing the global litigation map, with it being pivotal in the development of collective actions against financial institutions and commercial entities and their directors and officers.

Management in the UK could be prosecuted for failure to prevent fraud by staff
Speaking at the Cambridge International Symposium on Economic Crime in September this year, the Attorney General reiterated the Prime Minister’s priority of expanding economic opportunities - meaning businesses "of all sizes" should be better held accountable for their failures. The Attorney General also restated the intention to consult on extending the criminal offence of 'failure to prevent' to other economic crimes such as fraud and money laundering so that firms are properly held to account for criminal activity that takes place within them.

“If a new corporate offence of failing to prevent economic crime is introduced in the UK, it will represent a huge expansion in corporate criminal liability,” said Terry FitzGerald, Head of Commercial D&O and Financial Institutions, UK at Allianz Global Corporate & Specialty. “Although these particular reforms are focused on corporate liability, there is, of course, a broader drive to hold individuals accountable in the event of criminal conduct or regulatory breaches at their companies.  In recent years, increasing emphasis has been placed on personal accountability across all business sectors, with Deferred Prosecution Agreements now a means to further increase cooperation with regulators and encourage best practice. Reform in this area could ultimately have a fundamental impact on the risks faced by senior executives.”

The risks and potential liabilities of senior executives have never been greater
Litigation against companies and their officers is on the rise. In the US, the number of security class action filings is rising and, at mid-year, was on course for its highest annual total for 12 years [2]. Many Asian countries such as Japan, Hong Kong, Thailand and Singapore are also moving towards a more litigious culture. The increase in claims has also been pronounced in Germany where the number of D&O claims for AGCS alone has tripled in the past 20 years.

Cyber risks on the board agenda
The landscape for executives is further complicated by a number of emerging perils, such as liability around cyber-attacks and data privacy. In the US; several class actions have already been filed related to data breaches. Data protection rules around the world are becoming increasingly tough, with severe penalties for non-compliance. As a consequence, AGCS experts anticipate cyber security-related D&O litigation more widely in the US, but also in Europe, the Middle East and Australia – if there has been negligence in any failure to protect data or a lack of controls. “Many directors used to see cyber as an IT issue and not an exposure for the board to consider,” explains Emy Donavan, Regional Head of Cyber Liability North America, AGCS. “But there is no escaping cyber risks and directors need to be adequately informed, otherwise they will leave themselves exposed.”

Other new management risks include negative disclosures or allegations around environmental pollution, climate change and modern slavery which could result in reputational risks and shareholder activism, public outcry or governmental action.

Mergers and acquisitions (M&A) continue to be a key driver of D&O litigation and is predicted to continue at rapid pace in future. “M&A, but also divestitures, belong to the more riskier moments in the life of a company,” says Poncin. “Expectations are always high, and synergies are easier planned than realized.”

Highly sophisticated risk management required
In order to tackle the increase in executive risk in future directors need to develop a highly sophisticated risk management culture. Examples include instilling first-class cyber and IT protection, keeping records of all information relevant to a managerial role and maintaining open communication with authorities, investors and employees. Executives should ask tough questions about compliance related topics such as sanctions, embargoes, domicile registrations, price-fixing and fraud and also learn more about “classic” D&O exposures such as M&A, capital measures and IPOs. The AGCS report contains best practice advice and checklists outlining how executives can mitigate risk.

D&O insurance has become a regular part of companies risk management in the past 20 years. It provides financial protection for managers against the consequences of actual or alleged “wrongful acts”. Common D&O risk scenarios include HR issues, shareholder actions, reporting or disclosure errors. Coverage does not include fraudulent, criminal or intentional non-compliant acts or cases where directors obtained illegal remuneration, or acted for personal profit.

[1] AGCS analysed 576 claims between 2011 and 2016

[2] 119 new federal securities class action cases filed during 1H 2016, Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse’s report

(Source: Allianz Global Corporate & Specialty)

In October this year, fees for appeals in the Immigration and Asylum Chamber of the First-tier Tribunal increased from £80 to £490 for a decision on papers, and from £140 to £800 for an oral hearing. This change represented a 500% increase in fees.

The Government has today announced a reversal of that increase, with immediate effect. Additionally, the Government has said that it is reviewing the role of fees in the Upper Tribunal and that it will consult on new plans for tribunal fees, including in both first and upper tier immigration and asylum chambers, in due course.

Chairman of the Bar, Chantal-Aimée Doerries QC said: “The withdrawal of the recent substantial increase in immigration and asylum fees is a welcome step, as is the announcement that those who have already paid this fee will be reimbursed. These fee increases risked seriously restricting access to justice.”

“The impact of such huge fees is not only to restrict access to justice; where the appeal process is unaffordable, the rule of law is also undermined.

“There is still a great deal to be done to address the problems caused by other recent increases in court and tribunal fees and charges. As the Justice Select Committee reported earlier this year, we have seen a drop of almost 70% in the number of cases brought before employment tribunals, but no real change in success rates. This indicates that thousands of people who have valid cases are unable to exercise their rights at work. Additionally, anyone who brings a money claim must now pay up to £10,000 up-front, just to gain access to the court.

“Whilst today’s announcement is encouraging, the Bar Council remains concerned about the remaining enhanced and increased court fees. We will continue to push for an approach to court and tribunal fees and charges which puts access to justice at its heart.”

(Source: The Bar Council)

Increasingly within the self-employed economy, and amongst start-up and scale-up communities, businesses require a commercial adviser who really understands their business and can guide them through legal and commercial pitfalls, dot the I’s and cross the T’s on detailed legal drafting, and provide solutions.

However, lawyers and professional services firms appear to be out of sync. In the legal industry, training focuses on minimising risk rather than changing the approach to deal with the new economy. Both detailed drafting and providing commercial advice are two big-risk areas, because they require good knowledge and experience. Where does this experience come from? Senior lawyers are focused on billable hours and so on the job training is not encouraged. They may provide simple drafting, proofreading or administrative tasks, but ultimately success is measured in billable hours, rather than in improving and properly training junior lawyers, hence enabling better work to be done at lower rates.

Lawyers to highlight problems and only the seniors to provide solutions? This possibly limits negligence but then how do junior lawyers learn or gain confidence or commerciality? What are the reasons for this? Perhaps if the junior lawyer gets too good, the client might believe they can get the same work at lower cost and form the relationship with the junior lawyer? Alternatively, if the junior lawyer builds relationships and expertise, they may leave and set up on their own, possibly taking clients with them.

This somewhat defensive approach does not seem in the long term best interests of the client and nor of the firm. We are seeing more and more lawyers leave the bigger firms - and even the profession – due to the absence of training, limited access to clients and mundane work. The vast sums invested into recruitment and early stage technical training are lost when firms do not follow-up with post-qualified on the job training and development. Furthermore, huge amounts of money are then spent on lateral hires (in terms of recruitment fees and guaranteed minimum drawings) when there is, consequently, a dearth of decent lawyers coming through from the ranks to fill the higher levels.

This defensive strategy, which seeks to avoid risk by limiting on the job training and development, does not deliver what the market requires and it does not save costs. Furthermore, a group of risk-averse, under confident, frustrated junior lawyers without a commercial skillset perpetuates the risk culture that firms are supposedly seeking to avoid.

Instead, the approach needs to be longer term - senior lawyers must be appropriately incentivised for spending time on training junior lawyers as they come through. Firms must be confident enough to take a bet on retention. This longer-term approach has been seen before. In the last global recession, the most robust companies were often the family-focused businesses in Germany, adopting a Mittelstand (Middle Ground) approach, focusing on good training and long term investment.

Currently our big law firms focus on short term profit rather than long term structure and prosperity. For some, this approach works well. For most however, it does not. Ongoing training for lawyers and other professional advisers should be more than a ‘nice to have’. It is a critical piece of the successful development of the services profession wrestling with how best to survive and prosper in the high growth economy. Problem solvers are in very short supply because, paradoxically, the risk of creating them, is perceived as too great.

Authored by David Farquharson, Co-Founder and Partner at Ignition Law.

(Source: Ignition Law)

Image by NYPhotographic

Lawyers have become increasingly concerned that Legal Professional Privilege (LPP) is being undermined by the Serious Fraud Office (SFO): they are anxious that this fundamental common law right may become further diminished as the SFO increasingly challenges companies which claim LPP while under investigation. But are they right to be concerned, and if so, why is the SFO making them so anxious?

LPP is an ancient common law right - an absolute right - which belongs to the client, either as an individual or as a company, and not the lawyer. There is an obligation on lawyers (a professional duty) to advise clients of their LPP rights, which they can assert whenever appropriate.

However, according to the SFO, companies being investigated by the agency can be asked to waive those rights relating to any information that it might want to access. And if any internal investigation is conducted, the SFO requires that it should be arranged so that LPP does not apply. The quid pro quo is that companies will receive ‘cooperation credit’ from the SFO, which may prove beneficial when it considers any potential prosecution.

What information is privileged, and to what extent, is far from straightforward: each case is different. And waiving LPP carries risks. Information can subsequently be used as evidence against the company showing its hand, while it can also become public during court proceedings and then published by the media if there is no restriction in place. This can have enormous adverse consequences for a company’s brand, share price and reputation.

SFO investigations are routinely complex with myriad regulatory, civil and criminal law issues, often in multiple jurisdictions. Understandably, any company which believes that it might become subject to an external investigation may choose to conduct its own internal investigation first, and consult its lawyers. Problems arise later when the SFO wants to access the investigation records made by that company’s lawyers.

It is therefore unsurprising that most disputes relating to LPP claims have their genesis in requests by the SFO for information which was originally part of an internal investigation - often completed before any SFO investigation has begun. David Green QC, the SFO’s director, has repeatedly expressed concern that such LPP claims are misused to frustrate SFO investigations, and he has said that the SFO will litigate over “false or exaggerated” claims, although this has not yet happened.

Naturally, the SFO wants the maximum possible disclosure to assist in any investigation that it might undertake. Cooperation is important because a company that is seen to be fully cooperative has a much better chance of not facing a courtroom following an investigation.

But further problems potentially arise when witnesses who are interviewed as part of an internal investigation then become witnesses at trial, should the investigation proceed that far. Even so, the SFO is battling to force companies to give up their LPP rights.

According to a recent article by Bankim Thanki QC, Hodge Malek QC, and Colin Passmore, senior partner at Simmons & Simmons: “Alun Milford, SFO General Counsel, recently confirmed that the SFO does not regard itself as constrained from asking for first witness accounts even if they are privileged. He further noted that the SFO will view as a “significant mark of cooperation” any decision to (i) waive a well-made-out claim to privilege and disclose witness accounts sought; or (ii) structure an internal investigation in such a way as not to attract privilege claims over interviews of witnesses.”

In May, Matthew Wagstaff, Joint Head of Bribery and Corruption at the SFO, outlined what the agency regards as proper cooperation. The deal is that ‘cooperation credit’ will be given in return for a waiver of privilege. Genuine claims to privilege are fine, but the SFO does expect to be able to see first witness accounts, which it regards as “factual narrative” and not privileged. Wagstaff also said that companies are expected to provide the SFO with any independent investigation report that it has undertaken.

But there might be a discernible undertone of duress in this arrangement: companies feeling pressured to comply with requests with the implication that they might even be denied the chance of negotiating a Deferred Prosecution Agreement (DPA) with the SFO - only two have so far been agreed since they were introduced last year - and will instead face trial. It also flies in the face of the well-established principle that ‘no adverse inference may be drawn’ when LPP is properly asserted.

Any decision by a company to waive its privilege manifestly needs to balance the risks against the preferable option of cooperating with the SFO and being fully transparent. Indeed, it may sometimes be pragmatic to waive privilege, even taking account of the risks. But such a decision must be made without the prospect of any undue pressure from the SFO. Regrettably, this might not always be possible.

The new DPA arrangements might offer a compromise solution that can be further developed: giving the SFO a brief oral summary of the findings, without any written notes from the internal investigation being handed over. This approach received a sanction from the court in both of the DPAs so far agreed. It may allow companies to co-operate with the SFO without losing their LPP.

For now, it is only an idea. The Law Society of England and Wales launched a consultation about its new guidance on LPP in July, noting that ‘it is of particular significance as LPP has faced threats from several directions of late.’ Its findings have yet to be made public.

In balancing the need to prosecute fraud properly and vigorously, the SFO also has to consider the importance of LPP and the longstanding principle that it is the client’s right. However urgent the imperative to remove potential obstacles to access relevant information relating to a company’s internal investigation, the SFO cannot simply strike at LPP as if it were some kind of Gordian Knot that can be cut through with one blow. Attacking LPP in this way undermines the very basis of the relationship between lawyers and their clients.

In pursuit of justice, the baby should not be thrown out with the bathwater.

(Source: Journalist Dominic Carman Twitter: @CarmanDominic)

As the role of the in-house legal team continues to evolve towards being a trusted strategic adviser to business, a new report from Eversheds has found that GCs are facing significant barriers to making the most of the efficiencies and the productivity boost that technological innovation could provide. Lack of company buy-in to secure the required budget, a deficiency in specialist digital knowledge, and a digital skills gap in their team are all identified as obstacles to progression.

The Looking Glass 2016 report from Eversheds and Winmark assessed the views of more than 200 senior legal leaders from both in-house and private practice teams to find out how digital technologies are transforming the delivery of legal services.

With the top strategic priority for in-house counsel being to increase team efficiency and impact (68%), they are acutely aware of the benefits investing in digital technology could offer their team and the wider business. 87% want to use it to find better ways of storing and retrieving information, 61% want to automate work to save time so they can focus on high-level strategic work, and 60% see it as instrumental in improving work-flow management. Although this technology will be used to take on some of the day-to-day tasks of the legal team, 90% of GCs surveyed are confident that their staff numbers will either grow or remain stable, as the role of the in-house team changes.

However, despite being keen to maximise the opportunities technology can offer to help position the legal team as advisers at the very heart of a business, the report identified several major barriers in-house lawyers are facing. As well as the two thirds (64%) that have difficulty securing budget, a further three in five (59%) find it difficult to integrate new technology with existing systems, and 56% lack the time needed to truly harness technology to its full capability.

And, although many in-house lawyers have the skills needed to use the technology, when it comes to procurement decisions, more than half (51%) feel out of their depth and unable to judge the full potential of digital innovations (or unable to dedicate the time to understanding this) and how they can improve their working processes. Almost half (44%) are concerned about their team or company’s resistance to change, with one third (33%) concerned their team do not have skills required to use the technology appropriately.

Lee Ranson, managing partner at Eversheds, said: “The global financial crisis brought in-house counsel to centre stage in many organisations, and as a result we’re seeing an “Americanisation” of the GC role, with in-house teams expected to offer overall strategic advice at the right hand of the CEO.

“The core role of the in-house team – dealing with compliance, data security, etc. – is only getting more onerous. In-house teams need to free up the highly-trained individuals within their teams to focus on work of strategic value and, increasingly, to focus on providing business advice. The digital innovations offered by legal services providers can be instrumental in driving efficiencies to achieve this.

“GCs should desire to position themselves at the heart of business strategy and, this is where they should pitch investment in technology. It is not solely a legal issue. Talking to budget holders in their language – in terms of value to the business, ROI and alignment with strategy - makes it possible to reframe the conversation as one of investment in the bottom line rather than cost.”

The report also showed that two thirds (67%) of law firms said investment in technology is a strategic priority. However, the findings identified major differences between the digital resources firms provide and what clients actually need.

75% of clients required more access to online templates and examples, but only 37% of law firms currently offer this. Similarly, clients want live status tracking, with 54% wanting online access to the status of all matters, but just 40% of firms provide this service. Over half of in-house lawyers (51%) desired a dashboard of all interactions with a firm, which was only offered by 20% of firms, and 42% of clients want to be able to automatically generate tailored reports – something that is only offered by one quarter (26%) of firms surveyed.

Charlotte Walker-Osborn, head of Eversheds’ global telecommunications, media and technology sector continued: “While it’s encouraging that law firms recognise the need to invest in technology, the report showed that legal services providers need to get better at prioritising client needs when developing digital technologies. There is a significant disconnect between what many law firms think clients want and what they would actually find useful. If law firms can provide digital services that genuinely add value to in-house lawyers, not only will it help strengthen client relationships but it will also help those firms build the case for investment in their own digital technologies and training.

“This is something already ingrained in Eversheds’ business model, so we can look beyond the horizon to anticipate the key changes that will impact in-house teams.”

John Jeffcock, CEO at Winmark, said: "The gap between in house legal functions and law firms has increased. The reason for this is that the speed of evolution, which includes technologies, of in house legal functions has risen and may continue to accelerate with the surge in appointments of legal COOs. So the gap could get even wider if law firms fail to keep up.

“The better law firms are keeping pace and some are even supporting in-house functions on their journey. However, many are being held back by their governance and financial structures. To succeed, a modern law firm needs to run faster and invest more. This in reality may mean less or faster partner consultations and reduced profitability as money is redirected from partners to clients and to investments in future competitiveness."

Suzanne van Montfoort, research manager at Winmark, said: “Future GCs will need to be more well-rounded than their predecessors. Expert legal advice increasingly needs to be complemented by business acumen, as well as by an understanding of how technologies can be integrated into new ways of working that deliver advantage to the organisation. This requirement for a broader GC skill set will translate into consequences for legal team structure, recruitment, and training.”

(Source: Eversheds LLP)

Georges Haour, Professor of Technology and Innovation Management at IMD business school:

China has the world’s largest market for digital shopping, mobile payments, and Internet-enabled financial services. Close to 400 million people in China do most of their payments using their smartphones. China’s overall business in information technology is a market of well above $300 billion, and it is estimated that more than 700 million Chinese have access to Internet. So any law impacting the online space—cybersecurity included—will make ripples in the way China does business.

That’s why its new cybersecurity law—due to take effect in June of next year—is particularly alarming. It is part of an ongoing government program to reinforce China’s cybersecurity, and arguably targets non-Chinese hackers. But it comes amidst continuous tensions between the US and China, not just in terms of cybersecurity (each country has accused the other of hacking), but with trade, the economy, and, of course, the US election, which will inevitably change how business is done between the two nations. The law appears to be counterproductive in several ways.

First, as the law sets forward, important network equipment and software will have to receive government certifications. This means that specific pieces of intellectual property or technical features will have to be divulged, which could easily be passed on to Chinese companies by the regulators behind cybersecurity. It shouldn’t be forgotten that the state in China has tremendous power and plays a critical role in economic plans. Government interference is much more prevalent than in Western nations. And under the veil of cybersecurity, regulators will have access to proprietary information that could benefit Chinese firms at the expense of foreign business.

The type of businesses most at risk will be those with special hardware and systems for network management. But it could even include data from and for ATMs. New generation ATMs have a much higher level of connectivity with mobile integration and face recognition. This makes them more vulnerable to hacking and means confidential devices and information will have to be used for protection. And under this law, that creates a big entry place for government snooping.

This law is also counterproductive because companies gathering data in so-called “critical areas” will have to store that data inside China. At this stage, the definition of “critical” is worryingly broad. Complying with this requirement will force international firms to make expensive investments to build duplicate facilities within China. This is in total contradiction with the free flow of data, expected to swell in 2020 after the introduction of 5G.

International companies will have to weigh this risk against the opportunity to do business in China. China has had a long reputation for ‘copying’ without getting insider access, and this law could only open the ease to which China’s business sector can review competition. For international companies there is no easy way forward as the choice is black or white. Either foreign companies will comply, knowing China has a way to peek into what previously was private, or they will chose to stand by principles of privacy at the risk of being excluded from the Chinese market. Despite the challenging dilemma, companies are likely to comply and give in to China’s demands. The market is too huge and far too ripe for future growth, especially when compared to more stagnant outlooks in Europe and the US.

In addition to creating barriers for international business in China, this kind of legislative move goes completely against innovation. It could well be considered to be part of what is called “indigenous innovation” in China. This consists in favoring Chinese firms by establishing non-tariff barriers, such as specific standards or regulations on products, in order to prevent non-Chinese firms the access to China’s large and dynamic market. And the impact would be wide-ranging, from consumer electronics to products such as equipment to produce renewable energy, including windmills and solar panels.

Innovation involves a complex process, but it requires a society to be as open as possible and to allow vibrant exchanges between people. While cybersecurity is important, this law will wrap around the free market as it grips security. Within China, entrepreneurs are, by and large, not bothered by their government’s management of the Internet, called the “great firewall”. However, this new law is a new step to tighten the government’s grip on the Internet. Furthermore, far from favoring China’s champions in this very dynamic area, such as Huawei, Lenovo, or Tencent, this law will handicap them in the long term. Maybe the hope is that these companies themselves will fight to alter the law and mitigate the negative implications for China’s Internet landscape.

US companies have already began to strongly lobby against the law, as well as China’s position that the Internet must be managed by authorities. But despite the efforts of any company, Chinese or other, the cybersecurity law is just a piece in a larger ongoing political puzzle that companies will have to deal with. Trump’s stance on trade and is equally, if not more, alarming for business. In the end, agility will be key for companies to succeed in the tense political environment.

(Source: IMD)

Bing Maisog, Partner at law firm Hunton & Williams in China:

China’s new cybersecurity law appears extreme in comparison to legislation we normally see in the US because the problem of cybersecurity is approached from an entirely different angle. Cybersecurity in the US is of the people, by the people, and for the people. In contrast, the drafters of the Chinese cybersecurity law see it as a state-led and state-directed effort in which the government and its regulatory staff know best.

There is more than one particular aspect of this law that make it controversial, but the one that would concern me most is the data localization provision. This means that operators of certain key information have to undergo a security review before transmitting data overseas. It is not clear what will be examined during this review, or what will have to be revealed or proven. That uncertainty is the engine that generates much controversy.

Another controversial provision is the law’s requirement that network operators must provide technical support and assistance to public or national security agencies when they conduct investigations of crimes. This raises the similarly unsettling question of what exactly these enterprises will have to do, or reveal, in the course of supporting or assisting such investigations, and suggests agencies and bodies, rather than elements of civil society, will have the leading role in conducting investigations.

One main long-term cost is that multinational businesses may have to restructure their businesses in China. But ultimately the greatest overall cost may be borne by China itself. By making it more risky to do business there, China may wind up discouraging further investment in it.

(Source: Hunton & Williams)

Fears of an economic slowdown and the future of Europe are the main issues keeping global compliance professionals awake at night. These are the findings of new research from The Risk Advisory Group, which surveyed more than 150 compliance professionals across a range of global businesses to uncover their main concerns and priorities for the year ahead.

Half of the respondents in this year’s Compliance Horizon survey, now in its second year, cited the threat of a recession as the biggest risk facing their business in the year ahead (53%), with Brexit their second biggest concern. More than half of respondents (55%) are still unsure about what it will mean for their business, but believe that a change in regulations or new regulations are the most likely implications for them. Worryingly 1 in 10 (13%) fear that leaving Europe may adversely affect their ability to recruit the right talent.

The US election also featured highly in compliance professionals’ responses, with a quarter (27%) seeing it as one of the biggest threats facing their business in the year ahead, and a far greater number are concerned about the implications a Trump victory might have on the profession. When asked their views on the two Presidential frontrunners at the time, 4 out of 5 respondents (80.5%) identified Donald Trump as the candidate who poses the greater threat to the compliance profession.

Many articulated reasons for their view, with common themes including his express intention to deregulate the business sector and a lack of understanding of both international trading relationships and the rule of law.

Against this backdrop of unprecedented change and uncertainty, one of the challenges compliance professionals say they continue to face is lack of resource. 73% of the compliance professionals we spoke to think that their budgets will either be cut or stay the same in 2017.  48% said it would take an internal investigation to drive any increase. There is clearly a strong emphasis on doing more with the same or less in the next 12 months, which could explain why respondents said that their key priorities will be driving efficiencies in processes (cited by 51%) and ensuring company-wide engagement and training (a priority for 49%).

Commenting on the findings, Bill Waite, Group CEO of The Risk Advisory Group, said: “The UK’s decision to leave Europe and the US election result are clearly dominating compliance professionals’ thoughts right now. No one knows for sure what Brexit will mean or what impact Donald Trump’s policies will have.

“But in the face of great uncertainty, there is a sense that compliance professionals are holding their nerve, looking at how to ensure they are in the best position to adapt to new or changing regulations. For 25 % of the people we surveyed this means improving efficiencies – bolstering their internal defences so that they are prepared for the future, whatever it holds.”

The Risk Advisory Group has developed LUMA in response to the ever-increasing effort required by businesses to comply with regulations. LUMA creates a single point of control for third parties, allowing companies to collect information directly from them securely, streamline compliance processes and centralise data.

(Source: The Risk Advisory Group)