Goldman Sachs 2015 Annual Report Download - page 34

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The Dodd-Frank Act requires the U.S. financial regulators,
including the Federal Reserve Board, to establish joint
regulations or guidelines prohibiting incentive-based
payment arrangements at specified regulated entities having
at least $1 billion in total assets (which would include
Group Inc. and some of its depository institution, broker-
dealer and investment adviser subsidiaries) that encourage
inappropriate risks by providing an executive officer,
employee, director or principal shareholder with excessive
compensation, fees, or benefits or that could lead to
material financial loss to the entity. In addition, these
regulators must establish regulations or guidelines requiring
enhanced disclosure to regulators of incentive-based
compensation arrangements. The initial version of these
regulations was proposed by the U.S. financial regulators in
early 2011 but the regulations have not yet been finalized.
The proposed regulations incorporate the three key
principles from the regulatory guidance described above. If
the regulations are adopted in the form proposed, they may
restrict our flexibility with respect to the manner in which
we structure compensation.
Anti-Money Laundering and Anti-Bribery Rules and
Regulations
The U.S. Bank Secrecy Act (BSA), as amended by the USA
PATRIOT Act of 2001 (PATRIOT Act), contains anti-
money laundering and financial transparency laws and
mandated the implementation of various regulations
applicable to all financial institutions, including standards
for verifying client identification at account opening, and
obligations to monitor client transactions and report
suspicious activities. Through these and other provisions,
the BSA and the PATRIOT Act seek to promote the
identification of parties that may be involved in terrorism,
money laundering or other suspicious activities. Anti-
money laundering laws outside the United States contain
some similar provisions.
In addition, we are subject to laws and regulations
worldwide, including the U.S. Foreign Corrupt Practices
Act and the U.K. Bribery Act, relating to corrupt and illegal
payments to, and hiring practices with regard to,
government officials and others. The obligation of financial
institutions, including Goldman Sachs, to identify their
clients, to monitor for and report suspicious transactions,
to monitor direct and indirect payments to government
officials, to respond to requests for information by
regulatory authorities and law enforcement agencies, and to
share information with other financial institutions, has
required the implementation and maintenance of internal
practices, procedures and controls.
Other Regulation
The U.S. and non-U.S. government agencies, regulatory
bodies and self-regulatory organizations, as well as state
securities commissions and other state regulators in the
United States, are empowered to conduct administrative
proceedings that can result in censure, fine, the issuance of
cease-and-desist orders, or the suspension or expulsion of a
regulated entity or its directors, officers or employees. In
addition, a number of our other activities require us to
obtain licenses, adhere to applicable regulations and be
subject to the oversight of various regulators in the
jurisdictions in which we conduct these activities.
The EU finalized the Markets in Financial Instruments
Regulation and a revision of the Markets in Financial
Instruments Directive (collectively, MiFID II). These
include new extensive market structure reforms, such as the
establishment of new trading venue categories for the
purposes of discharging the obligation to trade OTC
derivatives on a trading platform, enhanced pre- and post-
trade transparency covering a wider range of financial
instruments and a reform of the equities markets.
Commodities trading firms will be required to calculate
their positions and adhere to specific limits. Other reforms
introduce enhanced transaction reporting, the publication
of best execution data by investment firms and trading
venues, investor protection-related and organizational
requirements. Other requirements may affect the way
investment managers can pay for the receipt of investment
research. On February 10, 2016, the European Commission
proposed delaying the effectiveness of MiFID II until
January 2018.
The EU and national financial legislators and regulators
have proposed or adopted numerous further market
reforms that may impact our businesses, including
heightened corporate governance standards for financial
institutions and rules on indices that are used as
benchmarks for financial instruments or funds. In addition,
the European Commission, the European Securities Market
Authority and the European Banking Authority have
announced or are formulating regulatory standards and
other measures which will impact our European operations.
Certain of our subsidiaries are also regulated by the
European securities, derivatives and commodities
exchanges of which they are members.
22 Goldman Sachs 2015 Form 10-K