The demands facing compliance functions have arguably never been higher. Recent years have seen major regulatory changes, such as MiFID II, the Market Abuse Regulation and the fourth and fifth Anti-Money Laundering Directives. Add in a growing number of codes of conduct to get to grips with and an ever-evolving technological landscape and it’s clear to see that compliance departments have much to contend with.
In the coming years it will be essential for compliance functions to adjust and enhance their capabilities, in order to meet these increasing expectations. This was one of the key themes discussed at our Annual Compliance and Legal Conference last week, including in a panel discussion responding to the findings of AFME’s recent paper, produced with EY, The Scope and Evolution of Compliance.
Where in the past the core of a compliance officer’s role was to advise on regulatory requirements and monitor adherence to company policies, compliance is now expected to play a more strategic role in anticipating and managing risk. In particular, following the introduction of the Senior Managers and Certification Regime (SMCR), there is a clear need for management to be provided with a holistic overview of potential risk.
As Stuart Crotaz, a Partner at EY, commented: ‘What senior management want is rich compliance advice, offering a broad perspective on the latest thinking from regulators’. Being able to provide this high level strategic advice can be a stretch for departments already at capacity delivering day-to-day requirements. This is where technological developments such as artificial intelligence and automation of processes can play a valuable role, by alleviating the demands of time-consuming manual tasks. Taking advantage of these technologies would help compliance to shift from being a function which mainly generates data to one which is able to analyse and use data strategically.
But, in concert with introducing new technological solutions, the capabilities and skills of staff will also need to be upgraded to match. As Jacqueline Joyston-Bechal, Head of Compliance EMEA, BNY Mellon commented during the panel discussion: ‘We’re at a pivotal point in financial services and I don’t think there’s any excuse for not understanding new technology’. There are dramatic technological changes taking place which will affect almost every aspect of how firms conduct their business, not just in compliance. Keeping up to date with such developments can’t simply be ‘outsourced’ to IT or other specialists within the organisation. In order for compliance to ask the right questions, and assess the risks posed, they too must have a sound understanding of technological developments.
As the role of compliance changes, so too must its relationship with those managing risk on the front line of business operations (the so-called first line of defence). Ensuring the right balance between having an in-depth understanding of day-to-day operations within a firm and maintaining the ability to provide independent monitoring oversight can be challenging. In such circumstances, it’s important for compliance professionals to have confidence in their own abilities and not be afraid to ask questions of those working in the first line. This will be vital for ensuring effective oversight going forward argued Molly Deere, Vice President, Assistant General Counsel, at UK Law firm Stephens.
Whatever the future holds for compliance there will continue to be debate about the best way for firms to approach the challenges they face. It is for each individual firm to decide what is most appropriate for its individual circumstances. But, with three quarters of attendees at last week’s conference in agreement that the role of compliance will expand over the next three to five years, what doesn’t seem to be in dispute is that the increasing demands on compliance resources are unlikely to diminish.