On 3 October the Association of Compliance Officers organised its annual Compliance Professional Day. This time the theme was “The essence of compliance”. During this gathering Debby van der Leest and Sjako Weering from Charco & Dique gave a workshop to around 40 compliance professionals regarding the interpretation of the role of compliance officer. In this article we give you a summary of the workshop “The Advisory Compliance Officer’.
The workshop deals with the central issue of the degree of compatibility of the different roles that need to be fulfilled by the compliance function and whether these can be performed by one and the same compliance officer.
We take the ESMA Guidelines for the compliance function as our starting point and compare these with the statements of Theodor Kockelkoren, AFM committee member, during the Compliance Professional Day 2012 (“Compliance as serving leader of commerce”). Looking at the focus of these two expressions of the task of compliance we can identify a number of apparent contradictions. These are shown side by side in the table below.
|Policy and procedures||Dialogue|
|Reporting and monitoring||Strategy/business model|
|Training and information/awareness|
|Processes and systems
|Man and attitude
We used these apparent contradictions to start a discussion with those present, based on a number of statements on the subject.
Assertion 1: An effective compliance officer is unable to combine all roles (monitoring, reporting, advising and influencing) in 1 function.
Broadly speaking, the tasks of the compliance function can be divided into two categories: monitoring/reporting and advising/influencing. The question is actually whether these different roles can be combined by one and the same compliance officer. Especially when you look at the requirements specified by ESMA regarding the compliance function; for instance, can you still be sufficiently independent as a compliance officer when reporting on a subject that you have personally given advice about?
There were compliance officers present who combine all the functions and there were also others, who in their daily practice are more focused on monitoring/reporting or advising/influencing. Some remarked that it is possible to combine the different roles in one function. This is especially the case with smaller companies, when there is often little choice in the matter. In larger companies you often see these roles separated.
Compliance officers combining roles say it is precisely this that makes their function interesting: the diversity. They do not consider it a problem that they have to perform a role they have less affinity with or know less about perhaps. They also do not regard it as a problem to have to report on a subject which they had previously advised upon. This fits very well in a professional environment where everyone is aware of their individual role.
However there are also proponents of the above assertion. They are of the opinion that the several roles ask for different capabilities and types of people. It is difficult to perform all roles at the same time to the same level of quality.
Assertion 2: The compliance officer’s advice must be acted upon.
In practice we see situations of non-compliance, in which the compliance officer has given a negative advice which is subsequently not complied with. How compulsory or voluntary is the compliance advice?
Those present believed that compliance advice does not always have to be complied with. It depends on the subject of the advice and the interests taken into account in the considerations surrounding decisions. For subjects with a ‘hard’ review framework it rarely happens that advices are not acted upon, but more frequently the review framework is ‘softer’ and susceptible to different interpretations. Then the vision of compliance is taken into account, but it is not always determining. From a compliance viewpoint it is considered important that the situation is transparent and that there is feedback on why the management chooses not to follow the advice: comply or explain. However, there were no compliance professionals present (or rather no one raised their hand when asked) who are regularly confronted with non-complied advice.
Given the time available we skipped assertion 3 and moved on to discuss assertion 4.
Assertion 4: Compliance Officers should not be engaged in the law, but rather with what is ‘not harmful’.
Compliance is about supervising the compliance of legal requirements and internal and external codes of conduct. ESMA also seems to want to relate to this by seeing the compliance officer in particular as the one who explicitly trains and coaches the employees to gain awareness of the relevant requirements, also in particular to monitor and report about compliance. And, furthermore, to be available for advice. So it concerns above all the legal requirements. Theodor Kockelkoren sees the compliance officer mainly as a sparring partner for the highest company management in relation with sustainable earning models, awareness of topics that perhaps have or have not yet been anchored in legislation, but that concern questions such as: ‘would you as a company want to or be allowed to, make money with these products?’.
This view was also touched on in a presentation earlier that day, given by Mr. Edgar Karssing, about the current compliance model, which reasons from the law and not – as the speaker deemed more desirable – from the mission and the ideals of the company.
Those present agreed for the greater part that the supervision of compliance of legislation and regulation is part of the job responsibilities of the compliance officer, but that it is also desirable (and probably even necessary) to think pro-actively about sustainable and societal issues within the company. The way you could realise this within a company did show some nuances, however. Whether or not you do this as part of your task as a compliance officer, or as an employee in a special role, or as a member of the management team (on his/her own behalf). In this context it was remarked that it should be the task of compliance to ensure that there is at least some organised opposition.
In order to facilitate and stimulate the discussion we exaggerated the (apparent) contradictions between ESMA and AFM (Theodor Kockelkoren) somewhat. As one of the attendants rightly said: the AFM has ‘only’ underwritten ESMA’s guideline with regard to the compliance function and will thus consider this as a ‘formal’ framework.
In our opinion, following ESMA’s building blocks when setting up or expanding the compliance function will result in that compliance risks will at least be dealt with in a well-structured and controlled manner. But according to us, in today’s world that is not enough. Therefore, elements need to be added to the ESMA-model.
It would be so much better, not only for the efficiency of the compliance function but certainly also for the substance and depth of the compliance profession, if we make a shift to that level of equal sparring partner for the business. No more ticking boxes, or entering into dialogue. However, in our opinion this does not mean that one model must be exchanged for another. For us, it is about rebuilding and developing the current model into something better.
Whichever interpretation the compliance function is given, it must always be a good mix of solid structure, an adequate process organisation and motivated people with thorough knowledge, the right skills, and the necessary seniority and authority.
Charco & Dique
For more information on this subject please contact Charco & Dique on: 020-4165403 or e-mail to: firstname.lastname@example.org