New technology, increased regulations and a heightened focus on culture are changing the role of the compliance officer in the capital markets, especially with a new shift toward accountability on compliance teams.
Compliance officer liability is becoming a highly debated, hot topic in the capital markets. SEC executives have made statements in the past about compliance officers being held more “accountable for conduct that…is the responsibility of the adviser itself.”
With this newfound spotlight on CCO accountability, technology, regulations and culture are primary focuses for compliance officers, increasing pressure and responsibility.
Technology has increased firms’ vulnerability, and it’s changed the day-to-day operations and processes for compliance teams. According to Accenture‘s Compliance Risk study, half of compliance officers feel that cybersecurity will be a key challenge throughout 2016.
Compliance officers can also take advantage of technology by implementing tools that help broker-dealers keep in line with rules and regulations. By keeping up with compliance technologies, compliance officers can avoid additional fines by regulatory bodies that penalize firms who don’t implement policies and procedures that promote compliance.
Compliance tools can also help CCOs navigate the overabundance of all the regulations and channels they must follow. Learning these new systems and tools for day-to-day operations is becoming an essential task for firm compliance, and compliance teams need to stay on top of new technology to tackle the continuously developing structure of the capital markets.
In the last several years, changing political winds and heightened regulations from regulatory bodies like FINRA and the SEC have thrown financial firms for a loop with heavy fines. In 2015 alone, the SEC ordered nearly $4.2 billion in disgorgement and penalties.
Complicated trading procedures like Reg NMS have created an industrywide push for compliance, increasing the number of compliance managers across the board. More and more regulations create additional pressure for compliance within firms, and in order to avoid big fines and penalties, CCOs have more responsibility, relying on teams and technology more heavily to keep up with surveillance.
Though the SEC is currently outlining a plan for harmonizing rules across regulatory bodies, there will still be an overabundance of regulations, and compliance managers will need to continue to combat additional regulations — especially as more platforms, like dark pools, diversify and take on new roles.
Focus on culture
There’s been a recent push for culture in the capital markets. FINRA began actively reviewing broker-dealer culture earlier this year, calling out “culture” as a main focus in its 2016 Priorities Letter. The regulatory body went out with targeted exams to more than a dozen broker-dealer firms in February to assess firms’ culture.
Among the conditions FINRA is looking to flag in the exams, a few are:
- Presence of a top-down structure for creating and enforcing values
- Concrete and efficient processes to deal with infringements on a firm’s cultural values
- The ability to reign in subcultures that aren’t consistent or compliant with firmwide values
Stronger surveillance practices are key to getting a better hold on firm culture. Without a granular view on activity, it can be challenging for compliance teams to implement the top-down structure that FINRA advocates.