BT 2012 Annual Report Download - page 39

36
36 Strategy
Our risks
Compliance in a global environment
The global nature of our operations means that we have to
comply with a wide range of local and international legislative
requirements. Our legal compliance obligations include anti-
trust and anti-corruption legislation, competition law, data
privacy, trade sanctions, import and export controls, taxation and
telecoms regulatory requirements.
Changes over the last year
Some of the countries where we operate have increased their
enforcement of local laws and therefore the potential impact
of failing to comply with local and international legislative
requirements has increased significantly. The UK Bribery Act
(which also has effect outside the UK) came into effect in July
2011, with penalties for non-compliant businesses through the
introduction of a corporate offence of failing to have adequate
procedures in place to prevent bribery.
Impact
Failure by our employees, suppliers or agents to comply with
anti-bribery and corruption legislation (including the US Foreign
Corrupt Practices Act and the UK Bribery Act), or any failure in our
policies and procedures to monitor and prevent non-compliance,
anywhere in the world, could result in substantial penalties,
criminal prosecution and significant damage to our reputation.
More broadly, failure to comply with legal requirements can have
a significant impact and lead to reputational and brand damage
with investors, regulators and customers. This could in turn
impact our future revenue streams, the extent of which would be
dependent on the nature of the breach, the legislation concerned
and any associated penalties.
Risk mitigation
We have in place a number of established controls to address risk
in this area. These include a comprehensive ethics programme,
The Way We Work (our statement of business practice), and anti-
corruption and bribery policies. We also have policies covering
gifts and hospitality, charitable donations and sponsorship,
and agents.
We have a training programme for staff with a focus on roles such
as procurement and sales.
We operate a governance structure with five regional governance
committees focusing on the implementation of the programme.
These regional committees cover the US and Canada, Asia Pacific,
Latin America, EMEA, and the UK and Republic of Ireland.
A regular risk assessment is undertaken to ensure that the
appropriate mitigation is in place and is regularly refreshed. We
operate a confidential hotline where messages can be left in
person, via voicemail or by anonymous email. We run regular
checks on our business using Internal Audit teams as well as
external providers. We review our business operations to ensure
that our policies have been complied with.
Communications industry regulation
Some of our activities continue to be subject to significant price
and other regulatory controls which may affect our market share,
competitive position, future profitability and cash. Many of our
wholesale products in the UK are subject to significant regulatory
controls. The controls regulate, among other things, the prices we
can charge for many of our services and the extent to which we
have to provide services to other CPs. In recent years the effect of
these controls has required us to reduce our prices, although in
some cases, prices have been allowed to increase in real terms.
Regulatory decisions in all jurisdictions in which we operate
can directly impact our financial position. In the UK, Ofcom
has powers to directly amend the prices we set and therefore
the revenue we earn in certain markets. These can extend to
requiring us to make retrospective repayments to other CPs for
past overcharging and imposing fines for non-compliance with
the regulatory rules (including competition law). Outside the
UK, regulation defines where and how we are able to compete
through general licensing requirements and defining the
wholesale charges we pay for access.
Regulation usually operates within a clear legislative framework
that is stable in the medium to long-term. Risks of negative
regulatory decisions arise from within those frameworks. For
instance, in the UK, risks can arise from periodic market reviews
which may introduce tighter regulatory constraints, for example,
from new charge controls, or from CPs raising disputes or
complaints about our current or historical pricing. Risks also
arise as legal challenges are brought by others against Ofcom
decisions. Outside the UK, regulators can conduct investigations
into our licensing requirements and whether the services we offer
are compliant.
Changes over the last year
Over the last year, we have seen regulatory activity in a number
of areas which are summarised in the Regulation section on
page 18. A number of these rulings have resulted in a negative
impact either through retrospective price reductions or on our
future pricing.
Impact
In recent years changes in price controls have required us to
reduce our prices and in some instances to make payments in
respect of retrospective price adjustments. Additional or more
substantial regulatory price reductions could constrain our
revenue performance.
We may be required to provide new services to wholesale
customers on a non-discriminatory basis, increasing our costs
and increasing retail competition. Disputes may result either in
reduced revenue or increased costs going forward. We may also
be required to make retrospective payments to CPs if it is ruled
that we have overcharged them. Appeals may change Ofcom’s
decisions, which had originally been concluded in our favour.
Risk mitigation
We continuously monitor and review potential regulatory changes
and disputes, and maintain a dialogue with regulators and other
key influencers on critical issues. We use external advisors to
advise and support our positions and thoroughly assess the
potential for a legal challenge to any regulatory decisions.
Overview
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BusinessStrategy
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