The U.S. Securities Industry and Financial Markets Association (SIFMA), issued a new white paper that calls on regulators, compliance personnel and industry senior management to work together to properly define the role of compliance, in order to deal with emerging risks.
The new paper from the securities industry lobby group examines the responsibilities, opportunities and limitations of the compliance function, and builds on a previous white paper issued by SIFMA back in 2005. SIFMA notes that the financial industry has changed dramatically since then, with everything from the financial crisis to increased globalization, the use of new technologies, and new, complex and expanded regulatory requirements, which have “significantly altered securities firms and the operations of their compliance functions.”
“This change has led to an enhanced role for compliance, but it has also created the risk of blurring the line between compliance and business supervision,” it says.
The paper provides recommendations that aim to help define the appropriate role for compliance in an increasingly complex and volatile environment, and it explores the daily challenges that firms and their compliance professionals currently face.
“We believe that clearly defined expectations of the compliance role and strong and cooperative, yet balanced, relationships among the business units and senior management, regulators and compliance, are essential to shaping the proper role of compliance,” it says.
It calls on senior management to ensure that the compliance function is sufficiently staffed and resourced; to clearly define the role and responsibilities of compliance; and to stress that compliance is the responsibility of all employees and not just staff in that division; among other things.
For regulators, it says they should keep in mind that regulations that effectively deputize compliance personnel as their agents may eventually weaken the role of compliance. “To that end, we suggest that regulators, when applying and enforcing new rules and regulations to the securities industry, should consider whether compliance professionals are being expected to perform oversight roles where they lack the specialized business expertise or supervisory authority within a firm to carry out those responsibilities,” it says.
It also generally calls for greater cooperation and coordination among different regulators, and between regulators and the industry. “As new technology, new services and products, and global business models develop at an ever-increasing pace, it is critical that compliance, senior management and regulators work together to effectively identify, escalate and address risks, and to account for the growing prevalence and complexity of business and outsourcing issues,” it says. “Without such alignment, it will be difficult for compliance to respond efficiently to rapidly changing financial markets and related regulatory obligations.”