Regulations Lecture Notes - Auer (PART 2) - v6 22 10 14

Regulation of Financial Markets and Institutions
MBCi – Treasury and Investment
Wiener Neustadt, 2022

Agenda
0. Introduction
1. History and triggers of Corporate Governance
2. Corporate Governance and Codes around the world
3. Selected Codifications
– The impact of the UK Corporate Governance Code and Stewardship Code on the treasury function
– Governance regulation including Sarbanes-Oxley (SOX)
– German and Austrian Corporate Governance Code
4. Compliance, Financial offenses and compliance with sanctions

5. Problems resulting from poor governance (legal perspective)
6. The Insider’s and the Client’s view – how regulation of financial markets
affects daily business
1
Mag. Robert Auer, M.B.L.-HSG
Attorney-at-Law & Founding Partner – auer-law, Bad Vöslau, Austria
Selected Previous Work Experience

2014-2019 ILF Consulting Engineers Austria GmbH
Head of Legal / General Counsel Middle East / Corporate Secretary
• Establishment corporate restructuring of entities in Colombia, Georgia, Lao PDR, Romania, Austria, Germany,
Poland, Chile, Thailand, Bangladesh
• Legal support of affiliates in Austria, Germany, Romania, Norway, Slovakia, Colombia, Saudi Arabia, Iran, UAE,
Turkey, Iraq
• Member of local management teams
2011-2013 Eckert Fries Carter Attorneys at Law
Associate / Senior Associate
• Working on national and international cases in the field of Corporate / M&A, competition and cartel law, IP-law,
distribution law, labour law, dispute resolution
• Member of the Supervisory Board EAG-Beteiligungs AG (as of June 2012)
• Chairman of the Board Forsthaus Privatstiftung (as of August 2011 – September 2016)
2008-2011 JTI Trading S.A./Austria Tabak GmbH
Legal Manager WWDF/Legal Manager Slovenia, Slovakia, Hungary, Baltics
• Responsible for dealing with all kind of legal matters (focus on corporate law, contract law, tobacco law) in
Slovenia, Slovakia, Hungary and Baltics
• Member of the Supervisory Board JTI Hungary Zrt. (May 2009 – May 2011)
• Authorized Representative of JT International Luxembourg S.A., Branch Office Ljubljana (November 2009
– May 2011)
• Short term assignment to WWDF-division responsible for various legal matters
2004-2008 Speditions Holding GmbH/Rail Cargo Austria AG, ÖBB Holding AG
Assistant to the Board
• Participation in strategic and organisational projects implementing corporate governance principles
• Keeper of the minutes of supervisory board meetings in v arious affiliated companies
2
Mag. Robert Auer, M.B.L.-HSG
Education:
• Diploma (Mag. iur.) in Law at the University of Vienna
• Diploma (Executive M.B.L.-HSG) in European and International Business Law at the University of St. Gallen
• Bar exam taken at the upper regional court of Vienna with distinctions („Rechtsanwaltsprüfung“)
• Ongoing advanced training in project finance, law and social competence matters
Selected project experience:

Daimler Chrysler AG:
• Composing a position paper “Corporate Governance at DaimlerChrysler” for the employee representatives on the
supervisory board
Eckert Fries Carter Rechtsanwälte GmbH:
• Establishment of an Austrian branch office of a foreign financial services provider active in the area of ATM machines
ILF Consulting Engineers:
• Drafting and negotiation of contractual agreements for a > USD 1 bn infrastructure project in South Dhahran Area (Saudi
Arabia), including the construction of a deslination plant, a waste water treatment plant and water transportation systems.
• Provision of a feasibiilty study and drafting and negotiation of contractual agreements for 2 Thermal Power Plant Projects in
Iran (1 brownfield revamp project, 1 greenfield project) on ECPF respectively BOO basis with an investment of apprx. USD
700 mio.
3
Content, Evaluation Method, Bibliography
Part 2 – Auer
• Introduction Evaluation Method

1st course • Definition of Corporate Governance
30.9. • History and triggers of Corporate Governance • Part One (Kronfellner): Banking Super-
14.00-17.30 • Distribution of Case Study I vision & Regulation for Financial Markets
• 25% Mid-Term-Exam
2nd course • The Austrian Corporate Governance Code • 25% Presentation
7.10. • Case Study I
14.00-16.30 • Part Two (Auer): Corporate governance
• Governance conflicts for Financial Markets
• Case Study II • 30% Presentation
3rd course • The German Corporate Governance Code • 20% Final-Term-Exam
14.10. • Co-determination
14.00-17.30 • Stewardship
• Assignment of Group Presentations Bibliography
• GROUP PRESENTATIONS • Blair M., Walker G. and Willey S.:
4th course • Shareholders’ rights directive Financial Markets and Exchanges Law,
4.11. • Corporate Governance in the UK and the US Oxford University Press, current edition
14.00-17.30 • Financial offenses and compliance with sanctions • Gleeson S.: International Regulation of
• Compliance and Compliance Management Banking: Capital and Risk
5th course Systems Requirements, Oxford University Press,
18.11. • Sanction regimes current edition
14.00-17.30 • Repetition of course material • Ferran E. et al The Oxford Handbook of
Financial Regulation (Oxford Handbooks
in Law); Oxford University Press
EXAM • 45 minutes exam with single choice questions, • Moloney N.: EU Securities and Financial
25.11. asked definitions, case study situations Markets Regulation, Oxford University
14.00-14.45
Press, current edition
4
Agenda
0. Introduction

5
Risk appétit: moral hazard & payment systems
Definitions of Corporate Governance
No common definition of Corporate Governance
"…Corporate governance involves a set of

relationships between a company’s management,
its board, its shareholders and other stakeholders.
Corporate governance also provides the structure
through which the objectives of the company are
set, and the means of attaining those objectives
and monitoring performance are determined"
OECD Principles of Corporate Governance
But: it is all about the management and supervision of a company…

6
Why Corporate Governance?
7
• Founded in 1762 – even the Queen had an account there

• 1989: Nick Leeson, born 1967, joined Barings
• Promoted on the trading floor and in 1990, appointed manager in
Singapore
• In 1993, his profits constituted almost 10% of Barings’ total profits
• In July 1992, Leeson started to hide losses in an error account 88888,
claiming that this account had been opened in order to correct an error
made by an inexperienced member of the team
• Leeson hid documents from statutory auditors of the bank, making the
internal control of Barings seem completely inefficient.
• Leeson took out a short-term, highly leveraged bet on the Nikkei index in
Japan. At the same time, a severe earthquake in Kobe, Japan sent the
index plummeting, and his loss was so huge that he could no longer hide it.
• Barings, a 233-year old bank, collapsed overnight (loss: USD 1.5 bn) and
was bought by ING for GBP 1.
• Leeson was sentenced to six and a half years of prison in Singapore, but
only served four years due a diagnosis of colon cancer, which he ultimately
survived.
8
• Founded in 1985 by merger of Lay's Houston Natural Gas and InterNorth, 2

small Texan based energy companies
• Starting in the 1990, special-purpose entities were created to mask
significant liabilities from Enron's financial statements.
• What essentially occurred with the Enron scandal was that there was a high
degree of information asymmetry between the management team and
investors in the company.
9
https://www.youtube.com/watch?v=TKYWhOeYv3w
• Founded by Calisto Tanzi in 1961
• Parmalat collapsed in 2003 with a € 14bn ($20bn; £13bn) hole in its accounts in what
remains Europe's biggest bankruptcy.
• In 2008 Tanzi was found to have embezzled an estimated 800 million euros from the
company, and was jailed for fraud
• Tanzi was found guilty of falsifying accounts, misleading investors and manipulating
the market while he was CEO of the Italian dairy group, particularly between 1992 and
2003
• Parmalat’s financial statements had been misstated since at least 1990.
• Parmalat’s fraud began in 1990 as an attempt to cover losses at a South American
subsidiary.
• 1997–2001: Parmalat begins using derivative transactions to hide losses at its recently
acquired non-dairy subsidiaries.
• 1999: Parmalat enters into billions of euros’ worth of interest rate swap contracts
through its Bonlat offshore subsidiary. Parmalat also issued bonds to generate cash,
using Bonlat’s (fake) assets as collateral.
• 2003: CEO Calisto Tanzi steps down as the Parmalat board hires turnaround expert
Enrico Bondi to resolve the crisis, engaging PWC to review Parmalat’s finances.
• Also, Bank of America’s New York branch notifies secondary auditor Grant Thornton
that subsidiary Bonlat’s bank account, which allegedly held €3.95 billion of cash and
equivalents, does not exist.
10
Factors shaping Corporate Governance
11
Main theories associated with Corporate Governance
KEY ISSUE: Stewardship

Agency theory
theory
• Principal (shareholder, • Directors are regarded as

owner) delegates work to
Agent (directors)
Corporate the stewards of the
company‘s assets to act in
Governance the best interest of the
shareholders
Stakeholder Transaction cost

theory SEPARATION OF economics
OWNERSHIP AND
• Considers influence of CONTROL! • The firm itself is the
employees, creditors, governance structure and
customers, suppliers, shall align interests of
government and shareholders directors and shareholders.
12
Agency vs. Stewardship Model
Agency Stewardship
13
Stakeholder theory vs. transaction cost economics
Stakeholder Groups Transaction costs
14
Context and structure of a corproate governance system
Source: Brasil best practices of CG 2016
15
Summary of background to Corporate Governance
• Various scandals led to the development of good governance principles for corporations, i.e.
Corporate Governance constituted by codifications
• Corporate Governance is a relatively new area and its development has been affected by
theories from a number of disciplines; agency theory probably having had the most significant
influence
• In Central Europe, stakeholder theory is more common, taking into account a wider group of
constituents
• The development of Corporate Governance is a global occurrence and, as such, is a
complex area, including legal, cultural, ownership and other structural differences.
Main goal: Encouragement of ethical behaviour

and integrity to ensure robust corporate
governance
16
Agenda
0. Introduction
– Austrian and German Corporate Governance Code

17
Corporate Governance Codes around the world
EU-Memberstates
18
Comply or Explain
19
Rest of the World: See: http://www.ecgi.org/codes/all_codes.php
A…Albania, Algeria, Argentina, Armenia, Australia, Azerbaijan

B…Bahrain, Bangladesh, Barbados, Bosnia and Herzegovina
C…Canada, China, Colombia International Codes (and Guidelines):
E…Egypt EBRD
G…Georgia, Ghana, Guernsey EBA
H…Hong Kong ICGN
I…Iceland, India, Indonesia, Israel OECD
J…Jamaica, Japan, Jordan UN
K…Kazakhstan, Kenya
L…Lebanon
M…Malawi, Malaysia, Maledives, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco
N…New Zealand, Nigeria, Norway
O…Oman
P…Pakistan, Peru, Philippines
Q…Qatar
R…Russia
S…Saudi Arabia, Serbia, Singapore, South Africa, South Korea, Sri Lanka, Switzerland
T…Taiwan, Thailand, Trinidad Tobago, Tunesia, Turkey
U…Ukraine, United Arab Emirates, United States of America
Y…Yemen
20
Custodians of corporate governance codes:
21
Who is the regulator of corporate governance?
22
Basics in company law
Source: ICFJ
Anglo-american (Central) Anglo-american (Central)

system European system European
system system
23
Example Siemens AG
24
Company Forms
USA (UK) Austria (Germany)

Sole proprietorship Einzelunternehmen (e.U.)
Civil Partnership Gesellschaft bürgerlichen Rechts
(GesbR)
General Partnership Offene Gesellschaft (OG)
Available to
Limited Partnership Kommanditgesellschaft (KG) payment service
Limited Liability Partnership (LLP) GmbH („Law Firms“) providers, but
not to banks
Limited Liability Company (LLC) Gesellschaft mit beschränkter
Private Limited Company (Pvt.) Haftung (GmbH)
Public Limited Company (PLC) Aktiengesellschaft (AG)
Joint Stock Company (JSC)
Statutory legal
Cooperative (association, bank) Genossenschaft (Gen)
form for banks
European Corporation Societas Europea (SE)
Privat Foundation Privatstiftung (PS)
25
Pros & Cons of Legal Forms
Imagine, you intend to establish a company in Switzerland…
26
Agenda
0. Introduction
– Austrian and German Corporate Governance Code

27
The Austrian Corporate Governance Code
• First issue in 2002

• Adaptations in 2005, 2006, 2007, 2009, 2010, 2012, 2015, 2018, 2020, 2021
• 83 Articles divided into 3 categories of rules:
– Legal requirement (L): This rule refers to mandatory legal requirements (in case
only applicable to stock listed companies, such L-rule is to
be interpreted as C-rule for other companies)
– Comply or explain (C): This rule must be followed; any deviation must be
explained and the reasons stated in order to be compliant
with the Code
– Recommendation (R): The nature of this rule is a recommendation; non-
compliance with this rule requires neither disclosure nor
explanation.
• 5 Main chapters:
– Shareholders and the General Meeting
– Cooperation between the Supervisory Board and the Management Board
– Management Board
– Supervisory Board
– Transparency and auditing
28
Case study – Erste Group Bank AG
29
Case study – Erste Group Bank AG
• Erste Bank has declared its commitment to the Austrian Corporate Governance Code („ACGC“) since 2003
• In Principle, Erste Bank fully complies with all L-, C-, and R-Rules, with 2 exceptions:
• C-Rules 2 and 52a
DIE ERSTE österreichische Spar-Casse
Privatstiftung is, however, granted the right to
nominate up to one third of the members of the
supervisory board to be elected by the shareholder
meeting as long as it is liable for all present and
One vote per share and no right to nominate future liabilitiesof Erste Group Bank AG in case of
members of the supervisory board its insolvency according to section 92 para 9 of the
Austrian Banking Act..
In 2021, the supervisory board of Erste Bank

comprised 12 members elected by the annual
general meeting. The deviation is due to the size of
Erste Group and its market position in seven core
markets in Central and Eastern Europe as well as to
The supervisory board shall consist of ten the fact that Erste Group Bank AG must perform a
members at most multitude of financial market related and prudential
review and oversight duties.
COMPLY OR EXPLAIN 30
Case study - Erste Group Bank AG
External evaluation:
31
Specific sources of conflict: Agency relationships
Management – Shareholder conflicts
Management Supervisory
Shareholders
(Board) Board
Supervisory Board – Shareholder conflicts
32
Management - Shareholder conflicts
Shareholders entrust management with

funds from reinvested earnings or newly
issued stock, which management invests.
The overarching objective is to maximize

shareholders’ wealth.
Issue: Managers are human

• Managers may be more interested in expanding the size of the
business, bonuses based on earnings, taking on excessive risks, or job
security.
• Managers may consume excessive perquisites, or in effect, take
advantage of their position to spend excessively on things for themselves.
Effective corporate governance guards

against agency costs.
33
Supervisory Board - Shareholder conflicts
The supervisory board is an intermediary between the shareholders and management, and
represent shareholders’ interests by:
• Monitoring managers;
• Approving strategies and policies;
• Approving mergers and acquisitions;
• Approving audit contracts;
• Reviewing audit contracts and financial contracts;
• Establishing management compensation;
• Disciplining poorly performing managers.
A conflict may arise if the board members align with management.
Austria: See Section 95 Austrian Stock Corporation Act – catalogue of business transactions requiring
approval of the supervisory board
Case Study: How do access legal documents?
34
Responsibilities of the Supervisory Board
Establish corporate
values and governance
structures for the
company;
Ensure that all legal and

regulatory requirements
Meet regularly to
are met and complied
perform its duties;
with fully and in a timely
fashion;
Ensure that management has

supplied the board with sufficient
information for it to be fully informed Establish long-term
and prepared to make the decisions strategic objectives for
that are its responsibility, and to be the company;
able to adequately monitor and
oversee the company’s management;
Establish clear lines of

Hire the chief executive
responsibility and a
officer, determine the
strong system of
compensation package,
accountability and
and periodically evaluate
performance
the officer’s performance;
measurement;
35
Environmental, social, and governance factors
• Environmental, social, and governance (ESG) risk is the risk associated

with the management of environment, social, and governance issues.
– Involves mitigating risks and managing these risks when they arise.
• ESG risk affects the company’s sustainability and valuation.
Environment Social Governance
• Pollution • Workplace • Effective

• Disclosures issues governance
• Product quality
and safety
• Community
interaction
36
Examples of environmental, social and governance risks
• Legislative and regulatory risk (that is, the role of governments)

• Legal risk (for example, lawsuits)
• Reputational risk
• Operating risk
• Financial risk
37
Risks of weak corporate governance
Strategic
Accounting risk Asset risk Liability risk
policy risk
• The risk that a • The risk that the • The risk that • The risk that
company’s firm’s assets management managers may
financial may be will enter into enter into
statement misappropriated excessive transactions or
recognition and by managers or obligations that incur other
related directors. destroy the business risks
disclosures are value of that are self-
incomplete, shareholders’ serving and may
misleading, or equity. not be in the
materially best long-term
misstated. interest of
shareholders.
38
Benefits from strong corporate governance
Evidence suggests that:

– companies with strong
governance had greater
investment performance.
– companies with strong
shareholders’ rights
outperformed those with
weak protections.
39
Corporate Governance Issues
Minimum public notice period for general shareholder meetings and
requirements for sending notification to all shareholders
40
Deadline for holding the meeting after shareholder requests
41
Minimum shareholding requirements to request a shareholder meeting and to
place items on the agenda
42
The German Corporate Governance Code
„Code of Best Practice“ of Establishment of „Baums-

Frankfuter Grundsatzkommission Commission due to collapse of
Corporate Governance (early 2000) Holzmann (mid 2000)
Recommends
appointment
basis for
„German Code of Corporate

Vereinigung für Finanzanalyse und
„Scoreboard“ of DVFA (Deutsche
Governance“ of Berliner Establishment of Cromme-

Initiativkreis (early 2000) Commission „German Corporate
Asset Management)
Governance Code“ (end of 2001)

basis for
basis for
drafts
1. German Corporate Governance Code (early 2002)
contributes to
43
• The German Corporate Governance Code (the “Code”) incorporates significant statutory
requirements for the management and supervision (governance) of German listed
corporations and contains internationally and nationally accepted standards of good and
responsible governance.
• The objective of the Code is to make the German Corporate Governance system transparent
and understandable. It aims to promote confidence in the management and supervision of
German listed corporations by international and national investors, customers, employees and the
general public.
• The Code highlights the obligation of the Management and Supervisory Boards to ensure
the continued existence of the company and its sustainable value creation in line with the
principles of the social market economy (the company’s best interests).
• A dual board management system is required by law for German stock corporations
• The Management Board is responsible for managing the company. Its members are jointly
accountable for managing the company. The Chair coordinates the work of the Management Board.
• The Supervisory Board appoints, supervises and advises the members of the Management
Board, and is directly involved in decisions of fundamental importance to the company. The
Chair of the Supervisory Board coordinates the work of the Supervisory Board.
44
• The members of the Supervisory Board are elected by the shareholders at the
corporation’s General Meeting.
• 30% of Supervisory Board members of companies with more than 500 employees in
Germany have to be employee representatives. The statutory percentage of employee
representatives is 50% for companies with more than 2,000 employees in Germany.
• For companies with more than 2,000 employees, the Chair of the Supervisory Board, who is
almost always a shareholder representative, has the casting vote in case of tied votes.
• Shareholder representatives and employee representatives are obliged in equal measure to act in
the best interests of the company.
• Alternatively, German corporations may choose the legal structure of the European Company
(Societas Europaea, SE), an internationally widespread legal structure that provides for a one-tier
system of governance (Administrative Board).
45
• Recommendations of the Code are indicated in the text by using the word “shall”.
– Corporations may depart from recommendations, but in this case they are obliged to
disclose and explain any departures each year (comply or explain). This enables
corporations to reflect sector- or company-specific requirements.
– Well-justified departures from recommendations of the Code may be in the best interests of
good corporate governance. Thus, the Code contributes to greater flexibility and more self-
regulation in the German corporate constitution.
• Additionally, the Code contains suggestions from which corporations may depart without
disclosure; suggestions are indicated in the text by using the word “should”.
• The remaining passages of the Code that do not use these words relate to descriptions of
statutory requirements and explanations.
• Code stipulations covering not only the corporation itself but also its group entities use the word
“company” rather than “corporation”.
• Primarily, the Code addresses listed corporations and corporations with access to capital
markets pursuant to section 161 (1) sentence 2 of the Stock Corporation Act. Corporations
whose securities are not publicly traded are also encouraged to follow the Code.
• Listed credit institutions and insurance undertakings are subject to the applicable
prudential requirements, which are not reflected in the Code (see Regulation (EU)
No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential
requirements for credit institutions and investment firms and amending Regulation (EU)
No 648/2012 Text with EEA relevance).
46
Co-determination in German companies
• https://www.youtube.com/watch?v=GdvhOgto56k
• The word “co-determination”, or “Mitbestimmung” is a typical German term, although commonly

heard outside of Germany
• Refers to a concept for employee consultation and participation (in certain cases) in company
decisions at both establishment and company/group level within private sector companies in
Germany.
• Co-determination concept has a long history – dating back originally to the 1920s – and is today
regulated by a number of detailed laws.
47
Objectives of co-determination
48
Work council rights – German co-determination model
49
Legislation on company & group level co-determination
50
Co-determination according to the Coal and Steel Co-
determination Act of 1951
51
Co-determination according to the Third Party Act of 2004
52
Co-determination according to the Co-determination Act of
1976
53
Co-determination in other countries
54
Co-determination in other countries – level of participation
55
56
57
The Stewardship Code 2010 (last revised 2020)
Who qualifies as a steward?
• The Stewardship Code is directed in

the first instance to institutional
investors, by which is meant asset
owners and asset managers with
equity holdings in UK listed
companies.
• The Stewardship Code also applies,
by extension, to service providers,
such as proxy advisors and
investment consultants
58
Key problem related to stewardship
Increasing institutionalization of ownership and declining holding period
59
Investors’ public equity holdings, as of end 2020
60
Development of ownership landscape at the regional level, as of end of 2020
61
Ownership concentration by market, as of end 2020
62
The Stewardship Code 2010 (last revised 2020)
Overall objective
Comply or Explain
• Enhance the quality of
dialogue of institutional
investors with companies
to help improve long-term
returns to shareholders
• Reduce the risk of
catastrophic outcomes
due to bad strategic
decisions
• Help with the efficient
exercise of governance
responsibilities
63
Requirements and recommendations for proxy advisors
64
Disclosure of voting policies and actual voting records by institutional investors
65
Stewardship and fiduciary responsibilities of institutional investors
66
Stewardship Codes around the World
Italy 2015
South Africa
2011
67
Group exercise – Corporate Governance Codes around the
World
Greece Japan Macedonia Malaysia Slovenia
68
World
Prepare a short summary / presentation on the following questions:

1. Is the Code based on comply or explain
2. To what kind of companies does the Code apply?
3. Is the Code based on a one-tier, two-tier or “open” board structure?
4. What are the main focus areas of the Code?
5. How does the Code regulate the auditing function (auditing committee)?
6. Is there any “say for pay” regulation (disclosure of remuneration) in the
Code?
69
World

7. Is there a cool-off period for former executive to change into a supervisory
function?
8. Does the Code foresee a maximum number of board members?
9. Does the Code deal with stewardship?
10. Does the Code broach the issue of co-determination?
11. Does the Code recommend focusing on the long-term success of the
company?
70
World

12. Is the Code stakeholder or shareholder oriented? Which stakeholders are
mentioned?
13. Compare the Code with the Austrian Corporate Governance Code – are there
any similarities?
14. Does the code contain any “extraordinary” clauses?
71
Excursus: The Shareholder Rights Directive (EU) 2017/828
72
Excursus: The new Shareholder Rights Directive (EU) 2017/828
• Background: The Shareholder Rights Directive II (SRD II) sets out to strenghten the position of
shareholders and to ensure that decisions are made for the long-term stability of a company and by
amending SRD I (Directive 2007/36/EC).
• Goal: Improving corporate governance in companies whose securities are traded on the EU‘s
regulated markets.
• Applies to: companies with their registered office in a Member State AND shares of the company
are admitted to trading on a regulated market situated or operating within a Member State
Transparency of institutional Remuneration of directors and

Identification of shareholders
investors related party transactions
Facilitation of exercise of
Transmission of information Asset managers and proxy advisors
shareholder rights
73
• Right for companies to identify their
shareholders (Article 3a)
Identification of shareholders – Possibility for Member States to exclude
from identifications
– shareholders holding no more than 0,5%
of shares
Transmission of information • Transmission of information between
companies and shareholders (Article 3b)
• Facilitating exercise of shareholder rights
(Article 3c)
Facilitation of exercise of
shareholder rights – Confirmation of votes
• Proportionality of costs and non-
discrimination (Article 3d)
74
• Disclosure of the engagement policy
(institutional investors and asset managers)
(Article 3g)
– Description of the engagement policy
– Annual implementation of the policy
Transparency of institutional • Disclosure requirements for institutional
investors investors (Article 3h)
– Main elements of the investment strategy
– Key information about the mandates
Asset managers and proxy advisors • Disclosure requirements for asset
managers (Article 3i)
– Key information about investment
approach and execution of mandate
• Transparency of proxy advisors (Article 3j)
– Report about code of conduct applied
– Key information about the activitites
75
• Remuneration policy (Article 9a)
– Content of the policy
– Vote by shareholders
• Remuneration report (Article 9b)
– Content of the report
Remuneration of directors and
– Vote by shareholders
related party transactions
– Protection of personal data
• Related party transactions (Article 9c)
– Public announcement
– Approval rules
– Optional fairness report
76
The UK Corporate Governance Code 2018
• 5 key sections
• 18 main principles
• detailed by supporting principles
• 41 provisions
• Comply or explain
• Applies to all companies with a
premium listing, whether incorporated in
the UK or elsewhere
• Applies to accounting periodes

beginning on or after 1 January 2019
• „Shorter and sharper“ than its
predecessor (UK CG Code 2016)
77
78
79
80
81
82
Developments in Corporate Governance in the UK
83
Sarbanes Oxley Act – Introduction
https://www.youtube.com/watch?v=xW9pSAwaeO0
84
Sarbanes-Oxley enhance corporate responsibility, financial
disclosures and fight against corporate/accounting fraud I/III
On July 30, 2002, President Bush signed the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley) into law
Timing Sarbanes-Oxley is the most important securities legislation affecting public
companies, and thus, officers and directors of public companies, since the
Securities and Exchange Commission (SEC) was formed in 1934
The Sarbanes-Oxley Act of 2002 (“SOX”) is a United States federal law which
mandated a number of reforms to enhance corporate responsibility, enhance
financial disclosures and combat corporate and accounting fraud.
Objective • Improvement in quality & transparency in financial reporting
• Independent audit & accounting services for the listed companies.
• Creation of Public Accounting Oversight Board
• Increased corporate responsibility
SOX applies to all public companies in the U.S. and international companies
that have registered equity or debt securities with the Securities and
Applicability
Exchange Commission and the accounting firms that provide auditing
services to them
Source: Deloitte; Web Search
85
disclosures and fight against corporate/accounting fraud II/III
Title I Public Company Accounting Oversight Board

Title II Auditor Independence
Title III Corporate Responsibility
Title IV Enhanced Financial Disclosures
Title V Analyst Conflicts of Interest
Chapter
Overview
Title VI Commission Resources and Authority
Title VII Studies and Reports
Title VIII Corporate and Criminal Fraud Accountability
Title IX White Collar Crime Penalty Enhancements
Title X Corporate Tax Returns
Title XI Corporate Fraud and Accountability
86
disclosures and fight against corporate/accounting fraud III/III
Certification
•CEOs and CFO must certify periodic SEC reports (both the 10Q and 10K) Corporate
governance
•Independent Audit Committee directly responsible for appointment, pre-approval,
compensation, and oversight of the public accounting firm, including the resolution of
disagreements between management and the auditor regarding financial reporting
Potential Criminal Penalties

•Each periodic report containing financial statements filed with the SEC shall be
Key
accompanied by a written certification by the CEO and CFO:
Components
‒Information must present fairly, in all material respects, the financial condition and
results of operations of the issue
•Certifying statements that do not comply with the requirements may result in up to 10
years in prison and/or up to $5 million fine
Complaints and Anonymous Tips

•The Audit Committee must have procedures for the receipt of complaints regarding
questionable accounting, auditing or internal control
•Complaints must be anonymous and confidential
Source: Deloitte
87
Main differences between SOX and UK CGC
88
Main differences between SOX and UK CGC
89
Agenda
0. Introduction

90
Compliance – definition
▪ Compliance
„Compliance“ can be defined as „behaviour
in accordance with legal regulations and
compliance with regulative provisions“ (for
example: laws, contractual obligations and
internal regulations or directives)
▪ Compliance Management System (CMS)

Is understood as the totality of all principles
and measures of a company to act in
accordance with certain rules, which are
aimed to ensure compliant behaviour of
legal representatives and employees.
91
Compliance – a necessary evil
92
Corruption
• Corruption, generally speaking, can be defined as “the abuse of entrusted power

for private gain”. Corruption can be classified as grand, petty and political,
depending on the amounts of money lost and the sector where it occurs.
• Grand corruption consists of acts committed at a high level of government that
distort policies or the central functioning of the state, enabling leaders to benefit at
the expense of the public good. Petty corruption refers to everyday abuse of
entrusted power by low- and mid-level public officials in their interactions with
ordinary citizens, who often are trying to access basic goods or services in places
like hospitals, schools, police departments and other agencies.
• Political corruption is a manipulation of policies, institutions and rules of
procedure in the allocation of resources and financing by political decision makers,
who abuse their position to sustain their power, status and wealth.
93
How to identify corruption risk?
94
How to identify corruption risk?
95
Compliance – organizational issues
96
Compliance management systems – IDW 980
• CMS Audits • PG1102 Code of Conduct
7. Compliance 1. Compliance
monitoring and culture
improvement
• CMS Training
• Whistleblower System 6. Compliance
communication 2. Compliance
and information objectives
5. Compliance 3. Compliance
organisation risks
• Senior Management
• Compliance Officer (CO) 4. Compliance
programme
• CMS Work Instructions
97
Targets of compliance management systems
▪ Protection of senior management, executive staff, employees, customers
▪ Creates Trust of customers and partners in the structure of the organisation
▪ Promotes Identification with the organisation
▪ Provides Confidence in handling legally or criminally relevant situations
▪ Creation of values and guidelines
▪ Communication to the public and other stakeholders, that the organisation operates actively
in terms of a corruption-free business
98
KYC – Know Your Customer
https://www.lexisnexis.com/dd/auth/checkbrow
ser.do;jsessionid=71D635E5CC68823CE9D21
5DEB732FA81.2fOO7i2HNV9jqG0qp8Si7Q?t=
1511516761030&bhcp=1
99
Sanctions and compliance with Sanctions
https://www.youtube.com/watch?v=Y84WKS_r
https://www.sanctionsmap.eu/
OQ8
Definition of sanction: a threatened penalty for disobeying a law or rule, typically

in the form of restrictions on trade or official sporting participation
Sanction regimes
100
Sanction measures
Arms
Arms embargo Arms export Arms import
procurement
Asset freeze
and prohibition Embargo on Dual-use goods Financial
to make funds dual-use goods export sanctions
available
Flights, airports, Other

Inspections Investments
aircrafts restrictions
Restrictions on Training and

Vigilance
services education
101
Sanctions measures continued
Restrictions on
Prohibition to satisfy Restrictions on
Ports and vessels equipment used for
claims admission
internal repression
Gold, precious
Restrictions on goods Aviation and jet fuel Cultural property
metals, diamonds
Telecommunications
Luxury goods Other items Petrol products
equipment
102
Fines for non-compliance
103
Compliance with regulations related to Financial Markets
AML directive
Prospectus regulation
Market abuse directive
Market abuse regulation
Transparency directive
Capital Requirements Directive

(CRD) IV
104
KYC – Know Your Customer
Legal Basis (amongst others):
105
Sanctions for breach of financial market regulations
AML directive
106
Prospectus directive
107
108
109
Transparency directive
110
Capital Requirements Directive

(CRD) IV
111
Repetition of most relevant issues
112
Contact Details Robert Auer
Mag. Robert Auer, M.B.L.-HSG, attorney-at-law

Address
Hochstraße 23a / Top 3c
2540 Bad Voeslau
Austria
Telefon & Fax
T: +43 2252 730033
F: +43 2252 730033 – 89
M: +43 664 3484194
E-Mail
office@auer-law.at
113

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Regulation of Financial Markets and Institutions

MBCi – Treasury and Investment

Wiener Neustadt, 2022

4. Compliance, Financial offenses and compliance with sanctions

Selected Previous Work Experience

Selected project experience:

• Introduction Evaluation Method

4. Compliance, Financial offenses and compliance with sanctions

Definitions of Corporate Governance

No common definition of Corporate Governance

"…Corporate governance involves a set of

But: it is all about the management and supervision of a company…

• Founded in 1762 – even the Queen had an account there

• Founded in 1985 by merger of Lay's Houston Natural Gas and InterNorth, 2

KEY ISSUE: Stewardship

• Principal (shareholder, • Directors are regarded as

Stakeholder Transaction cost

Stakeholder Groups Transaction costs

Source: Brasil best practices of CG 2016

Main goal: Encouragement of ethical behaviour

4. Compliance, Financial offenses and compliance with sanctions

Rest of the World: See: http://www.ecgi.org/codes/all_codes.php

A…Albania, Algeria, Argentina, Armenia, Australia, Azerbaijan

Custodians of corporate governance codes:

Who is the regulator of corporate governance?

Anglo-american (Central) Anglo-american (Central)

USA (UK) Austria (Germany)

4. Compliance, Financial offenses and compliance with sanctions

• First issue in 2002

In 2021, the supervisory board of Erste Bank

Management – Shareholder conflicts

Supervisory Board – Shareholder conflicts

Shareholders entrust management with

The overarching objective is to maximize

Issue: Managers are human

Effective corporate governance guards

A conflict may arise if the board members align with management.

Case Study: How do access legal documents?

Ensure that all legal and

Ensure that management has

Establish clear lines of

• Environmental, social, and governance (ESG) risk is the risk associated

Environment Social Governance

• Pollution • Workplace • Effective

• Legislative and regulatory risk (that is, the role of governments)

Evidence suggests that:

„Code of Best Practice“ of Establishment of „Baums-

„German Code of Corporate

Governance“ of Berliner Establishment of Cromme-

Governance Code“ (end of 2001)

• The word “co-determination”, or “Mitbestimmung” is a typical German term, although commonly

Who qualifies as a steward?

• The Stewardship Code is directed in

Increasing institutionalization of ownership and declining holding period

Investors’ public equity holdings, as of end 2020

Development of ownership landscape at the regional level, as of end of 2020

Ownership concentration by market, as of end 2020

Requirements and recommendations for proxy advisors

Disclosure of voting policies and actual voting records by institutional investors

Stewardship and fiduciary responsibilities of institutional investors

Greece Japan Macedonia Malaysia Slovenia

Prepare a short summary / presentation on the following questions: