Posted on 29/04/2018 by James Walker
While most people across the Financial Services industry were celebrating the New Year and dreading the return to work in the first week of January, a sector of the industry was wringing its hands nervously at the prospect of 2016: the Compliance market. Whilst leaving 2015 behind was surely a relief for all Compliance specialists across the UK - after successfully (or not so successfully) jumping over the hurdles that were the changes in pension legislation and the preparation for the looming Sunset Clause (which takes effect in April of this year) – the challenges ahead are making more than one quake in their boots. Firms are already bracing themselves against the MiFiD II, and beginning preparations to endure the consequences that the Senior Managers Regime will bring.
Considering all this, in addition to the new, stricter, rules the FCA has imposed with relation to individual accountability, it is really no wonder that a climate of apprehension and uncertainty has settled across the Compliance market. With specialists already wary of expressing themselves freely on social media, one can’t help but wonder: is the new Senior Managers Regime simply going a step too far?
With these new rules, the FCA is effectively holding Senior Managers of regulated firms personally liable for any mishaps or failings in their respective areas of responsibility. One of the most widely publicised examples is that of Anthony Wills, former compliance officer at the Bank of Beirut, who was personally fined £19,600 by the FCA under current banking regulations that will also incidentally be mirrored by the Wealth Management industry. Wills was responsible for the development and implementation of a compliance monitoring plan, and, according to the FCA, was guilty of neglecting to inform them of delays in the plan and of providing misleading information to the regulator.
This increase of individual liability is rocking the Compliance market, and is a pain in the neck for most compliance specialists. It also raises important questions surrounding the function and powers held by compliance-approved workers, who have the distressing task of mediating between the Senior Firm Management and the FCA; often facing difficult situations whereby the Senior Management choose to ignore any compliance-related concerns or follow any advice. In this scenario, how should the Compliance specialist react, and how would the FCA measure their personal liability in the event that the firm fails to meet regulations?
Day to day Compliance operations in most firms are overseen by a vast number of managers and compliance specialists, who in turn work very closely with teams of financial planners and/or wealth managers in order to abide by the FCA’s regulations. Is it ethical, then, to make one person the culprit of the company’s failings which are ultimately the responsibility of a whole group of people?
With the tightening of the rules and implementation of the aforementioned regime, firms have two choices. The first is to employ highly skilled CF10’s who will gladly take on all of this responsibility. There is a downside to this, however: with more responsibility comes more work, and with more work inevitably comes an expectation for a higher salary. The other option is to recruit more Compliance specialists to cover as many areas of the business as possible; hence increasing effectiveness and efficiency, and lowering the likelihood of a failing to meet FCA regulations. The latter would seem like the most effective way to reduce the risk of facing regulator fines: giving a boost and strengthening Compliance departments by adding new, highly skilled recruits.
Either way, there is no question that financial institutions will have to step up their game in order to face the upcoming challenges of 2016; be it through recruiting, or carrying out internal changes. Many fear that these challenges will deter young professionals from steering their careers towards the Compliance arena, or experienced professionals from taking on very risky functions. Is there really a solution, or are we inevitably heading towards a (silent) crisis in Compliance? Only time will tell.
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