Long gone are the days when compliance was grudgingly accepted as a necessary optic to largely allay the regulators and viewed, by many, negatively as an expense line item that needed to be kept to a minimum. At the recent CSS Fall 2019 Conference, a lively panel provided an informative timeline covering the evolution of the compliance function from these old-school days to where it stands today as a much needed and valued business partner.
As discussed by this panel, perhaps most importantly, compliance, and the Chief Compliance Officer specifically, plays a critical role in fostering integrity within their firms. One of a CCO’s key functions is to act in a consulting capacity by providing regulatory guidance and business advice internally to help keep the firm in compliance with applicable rules. As part of this mission, CCOs must work with senior management to instill a culture of compliance and advance an environment where all staff members understand the critical importance of maintaining high levels of integrity. Just as importantly, creating an environment where staff can feel free to speak up if they see the need to address a compliance concern adds a critical element to a firm’s compliance culture.
So, how can one become a compliance influencer?
The panel laid out a multi-pronged plan that focused on developing trust, character, building competence, compliance message consistency and, most importantly, listening to your peers. John Walsh, Partner at Eversheds Sutherland (US) LLP noted that studies have shown that one can build influence by closely listening to others. All panelists agreed that developing personal connections within your firm is a critical component to gaining influence, as well as gaining an understanding of your organization and the audience for your compliance program message. A little internal political savvy goes a long way as well in identifying key players that can advance compliance program interests.
The panel then discussed the critical difference between supervision and compliance and made the point that compliance should be more of a business partner or consultant, not a supervisor of business unit functions. CCOs don’t run the trade desk and are not responsible for deal due diligence – supervisory staff in the business units are. Compliance should serve to provide business and regulatory guidance to management and then serve in a surveillance role, bringing any exceptions to the attention of management for their consideration. Walsh noted that management must understand the supervisory role they play by actually reading the compliance manual and learning what functions they can be held responsible for.
Mark Happe, CCO of AIG Life and Retirement, encouraged attendees to develop an annual compliance plan that involves input from business unit management. Creating such plans for each business unit will aide in determining how and what compliance and supervisory issues must be tackled, by identifying goals, drafting a plan to achieve the goals and then monitoring progress towards reaching the goals.
Another key ingredient to developing and implementing the compliance plan focused on the importance of delivering a strong, consistent message on the role and importance of compliance, both in communicating to senior management and staff.
When delivering your message to senior leadership, Walsh and Matt Calabro, Director of Institutional Wealth Manager Services at CSS, stressed the importance of communicating the significance of maintaining a robust compliance program and highlighting the role compliance plays within the firm to protect clients and the firm’s reputation. The panel agreed that setting the right “tone at the top” firmwide is critical; given the vital role that CCOs play, they need to be supported by senior management. CCOs, of course, can never go solo. An effective compliance program must begin at the top of the organization. The need for senior management to support compliance is not just a good business practice, but also a business necessity. Calabro stressed that when communicating the importance of compliance to staff, employ the “KISS” strategy: use plain English, be concise, and lay out simple actionable steps.
Now, some panel takeaways for becoming a compliance influencer:
- Participate on executive or similar committees to reach out to senior management and ensure that your counsel is heard and understood;
- Have periodic independent reviews conducted by outside parties to help identify any overlooked issues and avoid an internal, silo group think culture (i.e. use consultants, law firms etc.)
- Build trust by being willing to listen to staff; an open-door policy is key to fostering an environment where staff believe that the CCO is approachable.
- Be strategic and holistic in developing your compliance plan, as compliance should never be a “check the box” exercise.
- Always keep an open mind to learn what you can do better.
- Pay close attention to due diligence questionnaires (“DDQs”) content, which are more detailed than Form ADV 2A disclosures. Ensure that the DDQs are in agreement with other disclosure documents.
- Learn to sell compliance to senior management by emphasizing the critical role it plays in protecting clients and the reputation of the organization.
Tips on monitoring the compliance function:
- Keep a log of all staff that call or meet with you to better learn who is seeking (and following) your advice
- Monitor internal traffic to sites such as the code of ethics or compliance policies, in particular, after training presentations to help determine if your training message has traction
- Monitor internal audit (or similar) findings and remediation
- Track SEC findings and remediation
In closing, in a speech on June 29, 2015, former SEC Commissioner Luis A. Aguilar, addressed the need for firms to support the role of chief compliance officers, when he noted: “A company’s senior leadership should be strong advocates for a robust and enduring culture of compliance; such a culture fosters an environment where everyone understands the firm’s core values of honesty and integrity.” Without a doubt, adhering to Mr. Aguilar’s views will start you off in the right direction to enhancing your role as a compliance influencer.
Subscribe to CSS Blog
CSS frequently publishes blog posts which are written by our team from their observations in the field, at conferences and through experiences with compliance professionals. These posts are designed to further knowledge and share industry best practices. Topics run the gamut, including Form ADV, cybersecurity, MiFID II, position limit monitoring, technology challenges and more. Complete and submit the brief form below to receive notifications when we publish new content.