I have critically commented on how the compliance function is abused by the business people. But there are two sides of the same coin. We, as compliance officers, should also have a self-reflection on our practices.
With years of observation & experience, I would like to point out the following 5 typical "bad habits" of a compliance officer (CO). Such habits are bad because either they add no value on compliance effectiveness or they expose compliance officers to undue risk.
Copycat
When addressing the regulatory risk of a particular product or conduct, the CO simply quotes the relevant legislaton or code without explaining how the text is relevant or applicable to the situation. For example, he would list out SFO S.xxx, HKMA SPM SB-1, SFC Code of Conduct, etc. in the compliance comment section of a new product paper, but never derive any implications for breach of those regulatory pieces.
Intuition
This is another extreme - The CO simply says "I feel uncomfortable (by intuition) with such practice" without specifying a breach of any requirement or highlighting any regulatory concern. When tackling a compliance problem initially, it is acceptable that you rely on your intuition (of which the accuracy depends on your experience) and make a prudent comment. But eventually you have to support your intuition by reasoning and evidence.
Editor
The CO pretends to be an editor or language teacher (even if his literacy is so-so) when reviewing the documents prepared by business people (e.g. marketing materials, operating manuals, etc). He may have forgotten his role is to pick out compliance concerns (e.g. misleading statements, insufficient risk disclosure, etc.) from the documents instead of correcting typos or grammatical mistakes.
Beyond Expectation
This is not a compliment. I mean the CO is doing something beyond others' expectation of his compliance scope or expertise. If you are not a lawyer, should you review a legal T&C and give "legal opinions"? Of course not, otherwise you will put youself in an unfavorable position.
I remember this story. Many years ago a lady working in a bank branch called me and asked whether I could give a "tax advice" to her customer.
After I told her that this should not be a CO's job, she said: "Our bank should endeavor to offer the 'best service' to our customers." Then I replied: "If your customer is now asking for a dish of lobster noodle, would you immediately cook it for him!?"
Paperwork Monitoring
Some CO, especially those previously working in regulatory bodies, like to use "self-assessment" as a compliance monitoring tool. They would draft up a very comprehensive checklist which sets out the major regulatory requirements and distribute it to different business units for completion (i.e. to confirm "comply or not" for each item). But after collecting back the checklists, the CO would not perform any serious verification work. If self-discipline & self-censorship really work, why should a firm recruit a CO?
Compliance is a respectable job. But certain bad habits of CO have undermined the image of this profession. Let's work hard & smart!
Outsider
ReplyDeleteAfter working in the compliance industry for over a number of years, I see a decreasing in the quality of CO. In my opinion, the quality turns bad especially in recent 1-2 years: this phenomenon appears at every spectrum of Compliance Department/ Division (ranging from head to supporting staff).
Major causes I observe:
1. Demanding for CO is increasing at a soaring speed. People join the industry for SALARY instead of developing a career. Experience from internal audit, legal, risk management and operations, etc. are welcomed. Therefore, every “ex-specialists” may tend to act in accordance with their own past expertise. That’s why you will find “legal adviser”/ “internal auditor” in Compliance Department.
2. For senior ranking personnel (even department head), people joining the industry may not know compliance is (I overheard a case that a department head chose to join the industry merely because of the result from surfing around career websites sounded interesting and the job specification is “vague” which provided “rooms for creation”). Accordingly, no direction or framework is properly established.
3. For supporting staff who are mostly the young generation (because 1-2 “experience” can join the industry), they merely do not spend any time to understand the rules & regulations applicable to their working environment. They are unable to give advice by simulating the situation and apply the rules & regulations. Some of them even do not bother because what their goal is merely jumping around the industry to seek for higher pay
4. The mentioned phenomenon started once a “layman” to the industry has been recruited as the head of Compliance Department. Primary agenda of these “innocent” department heads is to recruit “best of the best” in the industry. But without any knowledge (or with inadequate familiarity) of the industry, the recruitment criterion will be quite “free”. The quality varies depending on the budget. That’s the start.
Organizations do really in need to CO (no matter to serve as an “idol” to regulator or for enhancing compliance culture), I will take the “sub-standard” CO as dead weight loss to the economy, i.e. instead of adding value to the organization, they may block business opportunities (by always saying “no” because it is an absolute safe advice) or may jeopardize the company’s position (by being a “yes-man” as they need to be friendly to every business people in order to maintain their prestige/ status in an organization: some management may dislike a CO if business people “complain” CO).
The dropping standard of CO (if this is really the case), perhaps is due to the fact that employers tend to believe people with some kind of well known backgroud (eg SFC, MA, large houses)are better those without.
ReplyDeleteA lot of people, with the aspiration and intellligent to be good COs, are not given the opportunity or at least not as highly paid as the others so called "legal background" people or "large firm people". I have seen people with legal qualification to be CO. Yet. tell you what, they were trained and qualified with well known firms and their experience is to a very large extent conveyancing. They dont know SFC rules, codes and guidelines. Even they know, they have no idea of put them into effect as they do not understand operational issues and they dont know, to comply is a combination of various things (understanding of laws and rules, understanding of operation, effect of laws and rules on operation) and you have do a lot of things (training, policy and procedures manuals, checklists etc).
I hope, viewers in the position and have the authority to recruit CO, take those with the ability and vision and healthy attitude.