Compliancex

The forecast for the compliance professional is sunny, with a chance of intermittent storms.

Compliance professionals are far more appreciated than in times past, thanks to an invigorated regulatory environment across all financial sectors, but they face significant obstacles in terms of their authority and independence. They have the daunting task of helping their firms navigate the ever-expanding forest of regulatory initiatives emanating from the agencies to which they report, while also being the emblem of their firms’ culture of compliance and enforcers of their internal policies and procedures.

It’s not an easy job, and the landscape keeps changing. To get a sense as to what new and more seasoned compliance professionals are facing and round up some practical advice, I sought the expertise of those who have worked within and examined the compliance field for some time.

Compliance officers and their skills, business knowledge and authority are essential components to an effective compliance culture in a firm. A culture of compliance needs to be embedded throughout the company, and there are several tools exist to make this happen.

Standards and benchmarks for the Compliance Professional

Compliance has developed from being a series of tasks handed to a fairly anonymous person in a corporation — perhaps someone working in an offshoot of a legal or audit department — to a comprehensive program of regulatory adherence and risk prevention, crafted and presided over by skilled professionals. Yet there are no national standards to assess their abilities or national standard by which to measure them. Is this a problem?

It could be, says two experts who run training and certification programs for compliance and risk professionals.

“A professional certification is helpful to demonstrate your abilities and help a company with its hiring, and it remains helpful for a relatively new role in firms too,” says Roy Snell, CEO of the Society of Corporate Compliance & Ethics (SCCE), a membership group for compliance professionals that offers training programs and other resources for continued professional development.

“SCCE has certified over 1,200 people through its certification program, and this number is growing quickly. If we look to the healthcare industry, you can see that 80 percent of hiring managers require or prefer candidates with certifications in compliance when making hiring decisions. Our membership grows by 25 percent each year as professionals understand that they need to be able to demonstrate their abilities — particularly in an industry still finding its footing and junior compliance officers stepping into the role.”

Renee Betar, Director of Education at National Regulatory Services (NRS), echoes Snell’s sentiments. Her organization offers certification programs and other types of training and symposia for investment adviser and broker-dealer compliance professionals, and it compiles a profile of the investment adviser profession annually with the Investment Adviser Association (IAA).
“The SEC’s adoption of the Compliance Programs Rule has made the role of the compliance professional more prominent, and the proliferation of negative headlines in the past few years has drawn attention to the importance of a strong compliance and ethics culture within financial firms,” Betar notes. She points out that certification and membership organizations want to advance compliance as a profession and strive to equip these professionals with the tools they need to keep pace with changing regulations and their corresponding compliance obligations.

The Financial Industry Regulatory Authority (FINRA), building on its existing continuing education program for compliance professionals in the securities industry, is creating an examination system for compliance officers with more than 10 subordinates or associates. The exam will track the rules and gauge the compliance professional’s comprehension of major topics, such as sales administration, registration and recordkeeping issues.

Lisa Roth, president of Monahan & Roth in San Diego notes that this will lend great support to the notion that compliance officers are highly trained and have been evaluated by an authoritative entity.

She goes on to note that those licenses that are applicable to a business’ advisory team, such as the Series 7 or Series 63 exams — are quite helpful, as is ongoing association memberships that keep a professional engaged with a like-minded community.

Getting out of the office

Manoj “Tito” Pombra, chief compliance officer at Matthews International Capital Management in San Francisco agrees that licensing is a good idea. But he notes that the greatest skills that compliance officers can have — and cannot be taught — are the soft skills in being able to talk to people and get them to be candid in turn. He observes how many rules are in the process of being implemented, such as pay-to-play and large-trader reporting rules, and how issues revolving around insider trading and proper disclosures related to “conflict minerals” are still being discussed and debated.

It’s the compliance officer that needs to prepare the firm, by walking the halls, armed with the knowledge of such pending rules, and making sure employees know whom to turn to with information on how the company could be doing better, he says.

Snell echoed the sentiment about compliance professionals needing to get out of their offices. “Compliance can be an exercise in papers and programs. You need to work with people to make corrections and to create appropriate policies and protocols.”

“You need to get out of your office, and you need to see what challenges you’re creating for others with your policies and procedures,” he says. “When you put a face on your demands, it makes it that much easier for other to work with you. Have an ongoing conversation with those you’re educating and motivating.”

But how much can compliance accomplish without access to the executive suite and the board of directors to being an effective leader in the compliance arena?

Access to the board

Betar advises compliance professionals to impress upon the board and executive leadership the importance of their role in the organization. Sadly, this is not always fully grasped.

“The SEC and FINRA rules mandate that the CCO has access to the CEO and board,” notes John Walsh, a 23-year veteran of the SEC and one of the developers of its Office of Compliance Inspections and Examinations (OCIE). These days, he serves as a partner at Sutherland Asbill & Brennan in Washington, D.C., advising its securities enforcement and litigation team.

“These agencies establish the minimum level on contact here, and it’s important to note that the chief compliance officer himself or herself should be viewed as a C-level professional.”

In full agreement with Walsh is Susan Axelrod, executive vice president of member regulation sales practice for FINRA. “It’s all about the culture of compliance. The tone is set at the top, and compliance needs the board’s and the CEO’s help in communicating it and enforcing the message across all levels of the organization.”

She notes that a culture of compliance means, first, that the compliance professional understands the business within which he or she is located, and second, creates a strong code of ethics that dovetails with both the business and its needs, and the rules. It involves hiring a competent staff, doing a fair amount of self-reporting and being proactive in talking to the regulators.

This would seem to imply a consistent testing of the organization’s policies and procedures, and a lot of transparency. She agrees, and she says that the compliance officer will get little accomplished if she or he does not try to learn as much as possible about the holes in the firm’s policies and procedures and be honest about how the firm is clearing them up.

Roth advises compliance officers to test their policies and procedures by looking six to 12 months ahead.

“Establish a metric to reach and then test it — gauging how much worse or better you faired after using the new procedure. You can use FINRA report cards as well; this will help you see how many problems turn up after an unannounced investigation you conduct in a particular area,” she says.

When all is said and done, and the board and the other teams in an organization have focused on who is hurting the company, compliance steps in to analyze how the company could be hurting others.

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Julie DiMauro reports on financial services regulatory compliance issues for Thomson Reuters.