A new framework was recently put forward by the National Society of Compliance Professionals (NSCP), as it seeks to better define its members’ personal liability in a firm’s regulatory mishaps. It appears that compliance officers are feeling vulnerable as regulations intensify around them. And who can blame them, considering the additional pressure and responsibility landing at their feet?
To understand better what may have prompted this, this article takes a deeper dive into the nature of a compliance officer’s role, its evolution, the multitude of challenges which CCOs contend with on a daily basis, and how a role so notoriously demanding can be made more manageable.
High Stakes
When your company’s regulatory adherence falls under your remit, there is naturally a great deal of responsibility.
Fines like JP Morgan’s $200 million penalty in December 2021 have an impact on a business’ share valuation, as well as its reputation. With companies of this size, the media are bound to take an interest in perceived failures, with this particular story gaining major international press traction. The “widespread book-keeping failures” that JP Morgan admitted to will not have filled their current and potential client base with confidence, and so the impact of such oversights is immeasurable, financially and reputationally.
Of course, most financial services institutions don’t operate at the scale of JP Morgan, but the point remains the same. It’s highly likely that heads will have rolled in the aftermath of such a public scandal, but the frightening reality for the CCOs out there is that professional humiliation is not necessarily all they will have to deal with; mistakes can plausibly lead to criminal charges and incarceration.
Leaders From Afar
While at smaller firms somebody in an existing role in the company may just ‘wear the compliance hat’ to fulfill legal requirements, the position of a more dedicated CCO is slightly paradoxical. Their focus is completely different to the wider team’s in terms of KPIs and what success in their role looks like, and yet to succeed, they need to collaborate with everybody across the organization and ensure that they’re engaged in the process.
As Clint Ward, Chief Compliance officer at Keel Point explains, “I need to spend a lot of time dealing with questions from our staff. Building that culture of compliance and letting people know ‘I’m on your side, I want you to succeed in serving our clients, we just need to do it in the right way’, is so important.”
Commanding the required level of respect and camaraderie amongst co-workers while serving an independent purpose is no mean feat. As Corporate Compliance Insights (CCI) explains in its recent survey report, “Many cliches paint compliance as the department of ‘no’, an anti-sales function, or a team that is simply unnecessary. Some respondents say those cliches are still alive and well.”
In many situations, CCOs have less authority than other high level executives, in that the CCO is not directly involved in operations. For some narrow-minded employees, this validates the notion that CCOs are a hurdle rather than somebody that will provide relief or assistance to the team. These opinions can be difficult to change, as good work in compliance is largely invisible and so doesn’t invite attention or acclaim.
Common Challenges
Aside from establishing both buy-in and compliance competency across the company, there are other issues which CCOs navigate frequently, and that are becoming more prevalent as time passes.
At the top of that list is keeping on top of a regulatory landscape that is evolving by the day.
In CCI’s aforementioned survey, 59% of compliance officers (COs) revealed that they felt ‘burnt out’, with 69% admitting that they were stressed about the pace of changing regulations. This is inextricably linked to the evolution of communications tools and employee habits, particularly since businesses worldwide were forced to shift to a remote workforce overnight. The subsequent increase in communications tools and the data that they create has widened the scope for infraction substantially.
48% of COs are also perturbed by their personal liability, a statistic which is backed up by the recent NSCP framework. The basis of that framework came from another survey conducted amongst NSCP members, in which 63% of the respondents said they were concerned that compliance officers would be individually charged in cases where the violations could be attributed to the company or other executives. The capacity for human error is another concern, with 72% of participants convinced that regulators have expanded the role of compliance officers and the scope of their responsibilities.
Clint adds, “I rarely get to decide my own schedule, I’m at everybody else’s beck and call a lot of the time. With everything that needs to be flagged, plus any questions from our staff, I spend a lot of time dealing with that. And we also have a lot of regulatory reporting to do”. Bandwidth is already low for many COs; throw in some extra responsibilities and an additional pinch of scrutiny from the regulators, and the recipe is a challenging one.
While there is some leeway for infractions as long as the compliance program “devotes appropriate attention and resources to high-risk transactions”, justifying the failures is certainly not as rewarding as celebrating the wins – like a sales team hitting an outlandish target, for example. The biggest win for a compliance officer comes when there’s nothing to report.
The Rise of the CCO
There is a silver lining. The CCI survey shows that despite the admission that 56% of CCOs felt their mental health had been negatively impacted by the profession, 60% said they are satisfied or very satisfied with their job. This perhaps signifies an acceptance that stress is just part of the job description, although this perspective isn’t the most sustainable in the long-term, and could explain why CCOs most commonly stay in their job for just 1-2 years.
Another by-product of more stringent regulations is that compliance officers are now very much in demand, as there’s simply more work to do. “Recruiters are expecting the fierce competition for talent will continue through the rest of 2022, as businesses are still unsure what sort of regulations, particularly in the crypto space, will be rolled out this year.” What’s more, “Businesses are luring compliance staff with salary increases, remote-working opportunities and company equity.” So while things are now relatively stressful for CCOs, they’re being rewarded in ways that can make those difficulties more palatable.
For the Record
With CCO’s in short supply, businesses need to ensure that they are equipping their compliance staff to succeed, and particularly if they aim to attract candidates into their organization. This may mean setting parameters around what platforms can be used, growing the compliance team, or investing in a third-party compliance solution which will lighten the increasing load.
By simplifying compliance processes and reducing the burden on individuals, businesses can reduce the likelihood of things slipping through the net via human error. This approach should also help to reduce the worrying levels of burnout, and to raise job satisfaction even higher. The way that regulations are proliferating in such sectors as crypto and financial services, there’s no doubt that the role is only going to become more fundamental, and CCOs may finally shirk the unwarranted animosity they have largely dealt with for decades.
