The Standard Compliance Department

Yes, we know that there’s no such thing. The variety of compliance departments will reflect the variety of firms, and each will look as different as the other.

Although that is a truism, it perhaps conceals more than it reveals. There are in fact important common factors in all compliance departments, whatever their size.

Fulcrum Compliance staff have, on behalf of the Chartered Institute of Securities and Investment, been working with the British Standards Institute and other trade bodies to produce an industry wide standard that could serve as a benchmark to firms considering their compliance structure.

The FCA Handbook in its current form is largely silent on work of the compliance department. But FCA have been involved in the drafting of this standard, and support it in principle. Whilst adherence to the standard will certainly be voluntary, one can well imagine that it could become the sort of thing that supervisors take into account when assessing a firm.

This standard has now reached a final draft stage and should soon be available for firms to use, either on an externally or self-assessed basis.

Fulcrum Compliance are happy to assist firms in benchmarking themselves against this draft standard, or considering how they might adopt it once it has been finalised.

Bribery & Corruption

Firms will doubtless be aware of the new Bribery Act and be wondering what impact it has on their existing procedures.

Firms would be forgiven for assuming that this legislation is directed primarily at large corporate entities who have extensive overseas business relationships. Whilst this assumption is not necessarily wide of the mark, it will be important for firms to at least consider their existing policies on gift & entertainment to ensure that they take account of the Act.

However it is equally important not to over-react. The recently issued Ministry of Justice Consultation made clear that the Guidance to the Act is intended to complement existing FCA rules.

The Guidance “does not seek to undermine the rules set by the FCA…Organisations must continue to comply with sector-specific regulations and standards at all times”.

Thus we should be safe to assume that the leading regulation in this area for FCA regulated firms will be the FCA rules on conflicts as implemented by firms through their Conflicts and Inducements Policies.

On the specific area of hospitality and promotional expenditure, the Consultation states that “reasonable and proportionate hospitality is unlikely to trigger the section 1 offence”. Furthermore “it is unlikely that a routine or incidental business courtesy … (will) engage section 6”. Business related hospitality, says the Consultation, “is recognised as an established and important part of doing business”.

As with all things, it’s a question of where on the entertainment spectrum you sit and what, in your sphere and your firm, is reasonable and proportionate. It is certainly wise to consider your entertainment practices in this context. This should for most firms be the core of the work to implement the Act.

Recent FCA Fines

Recent FCA enforcement action has seen fines of eye-watering size meted out to some household names.

Whilst care should be taken in drawing out general conclusions from specific cases, what’s interesting about these actions is that they do not appear to be in relation to obscure rules. They are often related to some apparently basic issues that have, for whatever reason, been overlooked.

Thus firms have been disciplined for, amongst other things, the following:

• failure to adequately check the HMT Sanctions Database prior to client take-on;
• failure to segregate client funds;
• failure to talk to the FCA about something that FCA should have been told about.

On the face of it, there’s nothing in the above cases which should have caused agonised soul searching about what was the right course of action. At the risk of generalising, it shows that firms still need to focus on the simple things, as these are the things that FCA – understandably – gets vexed about.

The firm’s Compliance Monitoring Programme should direct the firm to these areas. It won’t provide the answers to the issues – but at least it should bring them into the open where they can be discussed.

Fulcrum Compliance can advise on the content of your own Monitoring Programme, to ensure coverage of all appropriate risk areas.