Compliance Consultants

While small financial firms may not afford employing a full-time compliance officer, appointment of a compliance consultant sounds like a feasible solution. However, in HK usually the senior management of small firms prefer performing compliance by themselves or asking the ops / admin staff to double up this function rather than looking for an external consultant. Given that compliance is a professional job, reliance on part-time or inadequately trained staff to take it up is quite risky.

FSA recently issued a factsheet about using a compliance consultant for small personal investment, mortgage and general insurance firms. The following key messages are conveyed:

• The firm's compliance responsibility would not be "contracted out" by using the consultant.
• The compliance needs should be established in order to identify the right services (e.g. risk assessment, setting up procedures, training, etc.) from the consultant.
• Qualifications, experience and service standards of potential consultants should be assessed to ensure that they can meet the firm's needs.
• The firm should act on the recommendations made by the consultant.

FSA carried out work in late 2006 and early 2007 to see if, and how, compliance consultants were used in small mortgage, general insurance and financial advice firms. The project also looked into whether the firms that did use consultants used them effectively.

In particular FSA visited 22 small firms employing compliance consultants in early 2007 and found nearly half of them still had significant weaknesses in respect of their regulatory requirements. The work also showed over a third of these firms were not acting on recommendations from their consultants that would have improved their regulatory position.

Does this survey indicate that small firms have only employed compliance consultants for "window dressing" instead of protecting them against regulatory risk?