You are only as good as your people. No matter the country or company, competent, diligent and happy people make for success. Compliance personnel are no exception. Unfortunately, the role of the compliance officer is commonly underestimated and understated. It is so much more than an administrative role or simply processing KYC documents. It is rather like playing goalkeeper in a ball game. Human nature is ultimately the problem as most people don’t like change and don’t like being told something that they don’t want to hear.
The compliance officer role may be prescribed by a job description, regulator or the courts, but at the extreme end of the spectrum the CO is a gatekeeper whose role is to stop and prevent wrongdoing and be the first line of defense against fraud, market abuse, and misconduct. Quite a tall order.
In the Cayman Islands and other smaller financial centers, particularly those with a buoyant market predominantly comprised of small to medium sized entities, the compliance role has suffered stunted growth. In many cases SMEs have not been able to warrant a full-time compliance officer, resorting instead to outsourcing or sacrificing competence and independence by assigning the role to someone who also performs other functions.
This presents certain challenges considering the CO responsibilities and role.
‘Tone at the Top’
“Tone at the Top” is a rather catchy phrase, but don’t let that distract you from its importance. The compliance officer is appointed so the board can delegate its responsibility for compliance, but that is easily forgotten such that board members often ask CO’s, “Remind me, why are you here?” Senior management sometimes worries about personal liability and criminal allegations, but still it can be difficult to convince them of the risks, and while it is important to be able to bring issues to the board, CO’s can easily and quickly make enemies of senior management, putting their future careers at risk.
The board’s understanding and interest in the compliance system varies considerably from company to company. The CO with the right skills can help improve the board’s understanding and interest and how a strong compliance culture will improve competitiveness and reduce risk which should be quantified as a cost. But those skills are in short supply, and it might be rare for the board to act on CO recommendations.
Compliance manuals are an art and a science, but even the best example will not be enough to prevent or even mitigate risk. Without authority or teeth to enforce compliance, the manual or written controls will be ineffective.
The CO is often the internal adviser on questions that may extend beyond the job description. This can be an interesting aspect of the role, but the CO needs to be able to discern when they are being framed as the scapegoat for future problems. Aside from encouraging staff to trust the CO and communicate with them, contrary to most people’s perception, CO’s need to be in the business field. In short, the CO needs business acumen to add value. Only then can the CO make a positive contribution to protecting the company.
The best compliance officers
The best CO’s are akin to consultative business advisers that translate legal obligation into business solutions effectively and efficiently as part of a change management strategy to protect the reputation of the company.
Are CO’s introverts or extroverts? This can be significant as their personality may determine their effectiveness and staying power. The role can be very isolating; people run when they see a CO coming and generally are guarded in their conversations with them. There is a strong temptation for COs to keep themselves locked away in a dark room, but that will not cut it. CO’s need to be visible and involved. However, while becoming pals with the account managers and business leaders improves accessibility and the CO’s contribution, there is a need to maintain independence and skepticism – a very difficult balance to achieve and only possible for those systematic persons of the highest integrity.
Who will train the CO’s?
Who will deliver the company’s compliance training? While there are advantages to periodically bringing in outside educators and experts to supplement or support the CO’s messages, generally there is no place like home when it comes to compliance training. Frequent short and effective training sessions are perfect to communicate and embed the message. Knowing that the compliance message is continually updated and consistently applied can be a game changer for the compliance culture of the firm. But how many people have the skills to deliver informative and enjoyable training?
The risk assessment is the foundation of the compliance system, yet some CO’s may have no relevant experience and may be excluded from the process (because “compliance risk” is considered to be a subset or not included at all in the overall (enterprise) risk management of the firm, and yet the risk assessment may be only way to illustrate how the spend will reduce risks and overall cost.
If the CO is the primary contact between the company and the regulator, clearly professionalism and the ability to respond quickly and appropriately will be important. In recent proposed amendments to the anti-money legislation in Cayman, the compliance officer is described as a “Liaison Official,” which suggests that the CO will be required to act in the best interests of the company while balancing certain responsibilities to the regulator. Sometimes the regulatory requirements are not crystal clear and it is then easier to be more guarded.
In conclusion then, CO’s only need to have skills of professionalism, commercialism, leadership, communication, passion, customer focus and accountability, comfortable with managing change, problem solving, decision making, planning and organizing. What’s the problem?
The problem is that persons with all these attributes are a rare find. Much of the above can only be acquired by experience, like how a car accident tends to make people more careful drivers. It seems then that given increasing regulatory risk, the CO role is vital and challenging, and consequently competent CO’s remain in high demand and short supply.