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Compliance

The Modern Compliance Officer: Bolster Your Arsenal

Dale Emery has been a Compliance Officer and Head of Compliance at a number of well respected Authorised firms and is now a Vice President within Laven’s Compliance Department. In this piece, he writes on what he sees to be the major challenges within the Compliance Industry and outlines a few tools in the arsenal that a Compliance Officer can utilise.

Posted on 30 Mar 2021

If you are looking to manage a sub-threshold AIF under Laven’s regulatory umbrella, please contact Laven’s team for more information.

Originally published in Edition 125 of the AIMA Journal, click here to download and read in its entirety.

The role of a firm’s Compliance Officer has steadily expanded over the last decade. In more recent years, a deluge of new regulations, coupled with an ever-increasing focus on personal liability and threat of enforcement has placed more pressure on the role. Since the enormous burden imposed by the implementation of MiFID II and subsequent legislation such as SM&CR, Compliance Officers have routinely had to spread their time obligations more thinly across more duties. Further challenges have been presented by the COVID-19 pandemic. The sudden lack of proximity between staff and the move to an entirely electronic system of communication has thrown up its own set of hurdles, as well as heightening the threat of cyberattacks and further difficulties in ensuring that firms’ data is kept secure. The situation will only be compounded by a busy schedule of new regulations being imposed on firms in the coming years.

Regulatory Calendar
12th October 2020 - Securities Financing and Transaction Reporting ("SFTR") came into effect.
29th December 2020 - Capital Requirements Directive 5 ("CRDV") and Bank Recovery Resolution Directive 2 ("BRRD2") requirements came into force.
31th December 2020 - End of Brexit withdrawal Transition Period.

31st March 2021 - Senior Managers and Certification Regime ("SM&CR") becomes enforceable. 

26th June 2021 - Investment Firms Prudential Regime ("IFPR") becomes enforceable.
29th June 2021 - CRDV expands to Capital Requirements Regulation II ("CRR II")
Other regulation in 2021: Review of AIFM and Financial Services Bill coming (including changes to insider dealing and prudential regime). 
Other regulation in 2022: Environmental and Social Governance Disclosure Regulations for UK asset/investment managers with more than £50bn AUM. For other managers, this will be implemented in 2023. 

The nature of the Compliance Officer role means that much of their day-to-day is taken up by dealing with all manner of ad-hoc tasks, preparing for deadlines, regular committee meetings, dealing with internal matters as well as dedicating a large amount of time to longer-term projects.  Finding any more time to keep up to date with regulatory updates and other developments can therefore prove to be difficult. 

Many firms have turned to recruiting new compliance staff to manage the increasing workload. A shortage of highly skilled compliance practitioners means that this is often an expensive and difficult pursuit, however. Regulators have in recent years frequently cited poor expertise and experience among compliance staff when making enforcement decisions and even with a well-resourced compliance department, the fast-moving regulatory landscape can make it difficult to adapt to new regulatory developments.

It is often hard for Compliance Officers and Managers to look beyond the daunting regulatory calendar as obligations and requirements mount up. However, at Laven, we’ve been exploring what Compliance Professionals can do to enhance their workflow and turn the role from just a “value protector” to also being a “value creator” within the business. One of the first obstacles to overcome in this regard is regulatory reporting which can still be paper-based or, even when outsourced to an external consultant, conducted over email and non-specialised software such as Microsoft Word or Excel. The aim of turning Compliance Officers into “value creators” is to give them the freedom to take on a proactive approach to their work, rather than being bogged down in ongoing processes and spending much of their time ‘firefighting’ recurring administrative matters.

Regulatory Technology

Streamlining an entire compliance workflow may seem like a daunting task. However, the Modern Compliance Officer has a couple of relatively new tools in their arsenal that can aid them in this mission.

The most effective solution to this problem lies in using technology to organise the varied internal processes faced by the Compliance Officer. ‘RegTech’ or Regulatory Technology is software used to supplement or facilitate the compliance workflow. RegTech software is designed to reduce human error and create both time and cost efficiencies to help ensure compliance with regulatory and best-practice standards. RegTech achieves this through centralising the management and compliance workflow in one single location installing more of a process into the compliance workflow.

These unique and innovative systems reduce human error and create both time and cost efficiencies to ensure compliance with regulatory and best-practice standards. It is worth saying that the majority of these RegTech software’s do not seek to replace the Compliance Officer or undermine the importance of their expertise and experience, but rather support and supplements the role.

There are plenty of options to choose from depending on your business needs and internally we’ve witnessed that users will save up to 40% of the time usually spent managing their regulatory compliance workflow to ensure efficient use of their internal resources. The aim is to provide you with a highly functional environment populated with the core information that will allow point and clicks workflows.

Online Compliance Training

Another tool that the majority of Compliance Officers already utilise is Online Training programmes. Whilst it's important to state that Online Training will rarely entirely satisfy firms Regulatory requirements for training, it can certainly serve as the primary source of compliance education within a firm. Since the start of the COVID-19 Pandemic and the shift to a predominantly work-from-home workforce, we have seen platforms improve their offerings to ensure connectivity and the sharing of knowledge amongst teams.

The Regulatory Scope of Staff Training has also increased in recent times. Whereas 10 years ago, the main obligations for FCA and PRA Authorised firms were Anti-Money Laundering (“AML”) and Market Abuse Regulation (“MAR”) which still carry legal obligations for firms within the Financial Services industry. Regulators now recommend a much larger list of topics to be covered. Whether this is SM&CR and Conduct Rules Training, which is due to come into force end of March 2021 or the increased need for Data Privacy and Cybersecurity Training as Financial Services turn even more digital.

Whilst setting your staff tonnes of Online Training might satisfy the regulator, it is unlikely to go down well with your staff. Indeed, the new working-from-home norm has resulted in reported cases of “e-learning fatigue” amongst staff. To mitigate this, at Laven we have utilised different formats such as interactive text, video and audio to switch up how participants receive the information. We have also recommended compliance staff take advantage of customisation options. We’ve seen that adding names, pictures and examples that are specific to the firm have seen a decrease in the number of times employees need to take the assessment before passing signalling hire engagement.

Artificial Intelligence (AI) to automate processes and manage Data Flows

While it is not yet possible to fully rely on AI to automate all of a firm’s compliance processes, AI is already a feature of many firm’s administrative procedures such as for monitoring and surveillance purposes.  

‘Machine Learning’ processes are applied to detect complex patterns which highlight potential evidence of market abuse and other financial crime. With the aid of human analysis, these systems continually self-calibrate to enhance their processes. This can greatly reduce the amount of false-positive search results and save time and therefore expense. The technology is increasingly being applied to both front and back-office procedures to improve efficiencies and accuracy.

Last year, the FCA announced the launch of the Financial Services AI Public Private Forum (“AIPPF”) in conjunction with the Bank of England. Its stated aim is “to facilitate dialogue between the public and private sectors to better understand the use and impact of AI in financial services, which will help further the Bank’s objective of promoting the safe adoption of this technology.”

This affirms the regulator’s stance that it is open to the proliferation of AI as a tool to be used by firms for implementing compliance procedures while ensuring that their use remains appropriate.

Webinars

Traditionally keeping up to date with the latest industry news and practices would involve the Compliance Officer attending regular seminars and conferences in person. This would often be a time-consuming process sometimes, taking up an entire morning or afternoon.

A switch to online webinars, facilitated largely due to the arrangements made necessary by the pandemic, has meant that their attendance now requires much less time and expense.

Various associations and regulators such as the FCA have seen their output of Webinars increase during the pandemic, a trend that will undoubtedly continue going forwards.

Bolster your Arsenal

The role of the Modern Compliance Officer is not an easy one, especially given the vast swathe of new regulatory obligations firms are having to undertake as laid out in the table earlier. There are, however, several tools at their disposal that can serve to turn their job from primarily value protection, to a value creator and a key contributor to the wider success of the firm.