COMPLIANCE tells the chilling story of just how far one might go to obey a figure of authority


By Jonathan Howland, Compliance Officer/MLRO at Church House Investments

Jonathan Howland

I hope the title got your attention.  Trying to make compliance sound interesting can be a struggle but there is more to it that simply following the rules.

So how do you define compliance? Whenever I am asked what I do for a job, it can often be a challenge to explain in simple terms to a non-industry person, so I frequently have to resort to simply stating that I have to make sure that all customers are treated fairly and the business is conducted within the rules and regulations set by the regulator.  However, this is a rather dry definition and does not really encompass the whole range of responsibilities that those employed within compliance actually have.

Naturally, I will not be able to accurately identify the whole range of duties compliance staff have, as they vary from firm to firm and sector to sector. But I can give a taste of what I feel compliance represents, from the day-to-day, routine elements to the challenging, exciting (yes, it’s possible) business-changing aspects. 

Monitoring individuals’ and departments’ adherence to the rules set by the regulator, as interpreted by Senior Management and Compliance, forms one of the responsibilities of compliance, which can either identify potential problems or risks of failure or confirm that the policies and procedures within the firm work. To make life interesting (I appreciate that this is down to interpretation…), one sometimes has to undertake “themed” monitoring, and pick on a department, a function or even an individual and test the strength of the systems and controls surrounding the performance of that department/function/individual against their responsibilities.  It is often this work which helps foster the love-hate relationship between business and compliance.

On some occasions, life can offer some surprising and exciting (again, this may be a matter of definition…) opportunities for compliance to get their teeth into; a challenge from a competitor, a new business opportunity, a client complaint, a breach from a counterparty. These curve-balls can often really challenge the boundaries between commercial business interests and regulatory obligations.  The over-riding concern will always be the security of your business and your clients’ interests but also to rely upon the protection that the regulatory environment can frequently provide.  I often find that a challenge made upon any actions that your company has taken, whether over a client’s account, a financial promotion or a transaction, the quotation of chapter and verse of specific regulatory obligations and requirements supporting the action will often provide the best defence.

Then of course there is the management of the multitude of regulatory changes being thrust upon us by both international and domestic regulators and commissions. The US has given us the ever-popular FATCA; the EU has now thrust upon us episode 2 of MiFID (undoubtedly, not the end of the story…), along with the eagerly awaited Common Reporting Standard (who said tax wasn’t interesting?).  There will be further directives, regulations and domestic interpretations of such, and it is the responsibility of compliance to provide senior management with considered interpretation of the impact that these regulatory changes will or may have upon the business.  EU Directives are implemented by the UK regulators, following numerous consultations, legislative changes and recommendations.  Until the UK regulator finalises what measures it will take to implement such directives, compliance has to provide some indication to their businesses of where they believe the impacts are likely to be.  This is part of the risk management element of compliance, in which “worst case scenario” models have to be identified to prepare the business for such changes; it may require procedural changes, policy changes, operational changes, reporting changes, resource changes, all of which have a financial impact and feeds into the overall risk landscape defining the business’ ability to meet its capital requirements (or, for the layman, pay its way).

The biggest skill that anyone in compliance will need is the ability to absorb as much information as possible and interpret it into actual and potential impacts on business. Interpretation of rules and regulations, and how they affect the way in which business is conducted, is the one of the key functions of compliance.   One person’s interpretation may differ from another, especially when there is an element of ambiguity on a particular rule, and it is collaboration with fellow compliance professionals, industry bodies and consultants that can offer useful guidance to support learned experience.

Compliance provides financial services business with instruction, interpretation, guidance and support on what can frequently be a complex and equivocal element of the industry. Ignoring, misunderstanding or failing to identify regulatory obligations can cost firms millions of pounds in fines and undermine the reputation not only of the firm but of the industry as a whole (I didn’t say anything about banks, did I?).  Compliance is there to protect the client from the risk of their hard-earned cash from being lost through poor management, rogue individuals, mis-selling, and many other risks that the regulatory environment was established to safeguard them from.  Compliance is there to protect the business from the risk of their hard-earned cash from being lost through poor management, rogue individuals, mis-selling and many other risks that the business itself should be aware of. 

No one day is ever the same with compliance.   It can be rewarding, frustrating, challenging and interesting, but you can never expect anything other than the unexpected. It takes a particular intellect to be in compliance. As Oscar Wilde said, “To expect the unexpected shows a thoroughly modern intellect.

Please note that the comments and opinions in this article are of the author alone and do not reflect those of Church House Investments or Industry Events Online.