By Jake Plenderleith, 22 July 2024
2024 is the year of the ballot box. Voters have already cast their votes in India, Pakistan, Russia, Indonesia, South Korea, Iran, France, Britain and Mexico, with elections scheduled in Algeria, Tunisia, Austria and Uruguay. Americans, should you need reminding, will also be voting for their forty-seventh president in November.
New governments arrive armed with new plans and policies and fresh areas of focus and emphasis. Our point of departure is how new governments’ proposals will affect regulation and compliance.
AI, sanctions and ESG
Among the first issues on which incoming heads of state will be briefed will be Ukraine, with knock-on effects for sanctions measures, whether already in place or proposed. In the US, Republican presidential candidate Donald Trump’s stance on Ukraine is deliberately ambiguous, but his running mate JD Vance has been less cryptic, saying in a 2022 podcast that ‘I don’t really care what happens to Ukraine one way or another’.[1] A Trump victory will thus have a profound effect on the outcome of the war. Sanctions, which have formed a key part of the West’s response to Russia’s invasion, both as a strong signal of disapproval and as a diplomatic weapon, are likely to be affected, the consequences of which will ripple far beyond American borders. Nor are sanctions decisions confined to Washington. Kyiv’s recent sanctioning of Russian energy firm Lukoil caused fury in Slovakia, which elected Peter Pellegrini to the presidency in June.[2] Compliance professionals can expect further activity in this area, and should prepare their firms accordingly.
ESG, which only a year ago seemed to have captured the political and financial zeitgeist, has witnessed more recently something of a partial eclipse, and is less-often heard on the lips of politicians and executives. The FT attributes its gradual disappearance in contemporary discourse to a string of greenwashing scandals and political pushback, particularly from those on the right.[3] But talk of its demise is misleading: the environment and social concerns are the political lightning rods of our age and are not going away. A recurrent concern aired is a lack of initiative and joined-up thinking. India, for instance, was alongside Japan among the first countries to regulate ESG ratings for products. In February 2023, it became mandatory for India’s 150 largest publicly listed entities to report on ESG disclosures. However, the development of ESG legislation in India has been described as ‘inconsistent’.[4] Modi’s securing of another term in office earlier this year will give his government greater breathing space to legislate on ESG. The question is whether there exists the political will to do so.
Artificial intelligence has not suffered ESG’s wobble, garnering attention and headlines with an incredible persistency. This year saw the EU, for which an election to the European Parliament was held in June, push through its Artificial Intelligence Act (effective 1 August 2024, with prohibitions on specific categories of AI effective February 2025) in a bid to quell some of the more potent risks AI poses, a move critics claim either stifles innovation or does not go far enough in its scope. The Act, the first of its kind from a major legislature, is likely to attract imitators, not least in Britain, where stronger laws on AI have long been anticipated. The growing use of AI for good or ill means it is likely to appear high on the legislative agenda of new governments.
Regulation
Governments keen to make a splash can always look to regulation. In the UK, the Labour Party’s general election victory in July marked the party’s return to power in Britain after 14 years in opposition. The King’s Speech, which set out the new government’s legislative agenda, promised a ‘decade of national renewal’, and the success of that renewal will rely on decisions made in the Treasury. In a Guardian profile on the incoming cabinet, the new Chancellor of the Exchequer Rachel Reeves was described as adhering to a school of political philosophy whose credo was to ‘never see a market you don’t want to regulate, never see a piece of regulation you don’t want to add to’.[5] Reeves, who worked at the Bank of England from 2000 to 2006, is on familiar terrain in her new role, being in possession of a Master of Science in Economics from the LSE and having formerly worked at HBOS – it is felt that she understands bankers’ hopes and fears.
Yet in January, Labour revealed that it planned to merge many of the ‘excessively procedural rules’ contained within the FCA Handbook and to cut the financial industry’s ‘regulatory burden’. It is possible that Labour was signalling a sincere desire to untangle and clarify regulatory rules, but the announcement could equally be seen as a pre-election sop to those who champion a lighter regulatory touch, many of whom will have been wary of Labour’s tendency for greater regulation. Sir Keir Starmer’s party has been at pains to stress that it is pro-business and pro-market, with noises floated about trimming regulation likely intended to ameliorate suspicions in the City and to win over Labour sceptics. Nevertheless, a week after the election, the FCA announced significant changes to the UK listing rules to encourage growth and innovation in UK stock markets, a move which though the FCA conceded involved ‘allowing greater risk’, it said ‘would better reflect the risk appetite the economy needs to achieve growth’.[6] The new rules come into effect on 29 July.
The UK in respect of regulation is an instructive case. The accepted wisdom is that centre-left governments like to regulate, with de-regulation the hobby horse of the centre-right. Whether the Labour Party cleaves to this tendency could offer an indication of what will happen elsewhere. The economic impact of the war in Ukraine, including rising oil prices, as well as a global increase in the cost of living, might see governments succumbing to the temptation to loosen regulation in a bid to reinvigorate their economies.
Inertia
‘Change’ was the simple slogan adopted by the Labour leader Sir Keir Starmer, and yet change globally seems thin on the ground. Consider a year plucked at random, 2017. Emmanuel Macron was the newly elected President of France; Xi Jinping held the reins of power in Beijing; Erdoğan was the Turkish President and Vladimir Putin sat in the Kremlin; Trump occupied the Oval Office, Modi was approaching the denouement of his first term as Prime Minister of India, and Benjamin Netanyahu was in power in Israel. Seven years on and all but one of these men remain in power, and even he has a strong chance of returning to the White House.
A generous observer would perhaps call this a desire on behalf of voters for continuity; a more grounded viewer, aware of the roiling shifts in global affairs over the last decade, might diagnose institutional sclerosis. This is significant because elections centre on affecting change: political incumbents, representing continuity, are less likely to push for it, while newcomers, keen to make their mark and swept up in the rush of electoral victory, are more likely to press ahead. Compliance professionals more than most must be prepared both for continuity and change – the end result will directly affect their firms’ daily operations.