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Challenges for the Chief Compliance Officer (CCO)
You are
the Chief Compliance Officer.
You are
responsible for ethics and compliance. You are responsible to
build a
strong organizational ethics and compliance program,
which is a high priority in any organization, especially in listed
ones.
Reputational Risk Management
is becoming more and more important. Every compliance or ethics
issue may lead to a scandal or
a
problem with the company’s reputation that
may weaken its brand value.
Supervisors, Regulators, Internal and External Auditors
try to ensure that you have built a good ethics and compliance
program, and that you have the necessary knowledge and experience
as the chief ethics and compliance officer in charge.
These are the major
challenges for your job:
Challenge 1:
Your
role is not clearly and properly defined.
Challenge 2:
There are
Conflicts of Interest (self-review).
Example: You manage
functions and you audit them for compliance the same time.
A firm must take all reasonable steps
to identify conflicts of interest between:
(1) The firm,
including its managers, employees and appointed representatives
or any person directly or indirectly linked to them by control,
and a client of the firm; or
(2) One client of the firm
and another client;
that arise or may arise in the
course of the firm providing any service
Types of conflicts
For the purposes of identifying the
types of conflict of interest that arise, or may arise, in the
course of providing a service and whose existence may entail a
material risk of damage to the interests of a client, a common
platform firm must take into account, as a minimum, whether the
firm or a relevant person, or a person directly or indirectly
linked by control to the firm:
(1) is likely to make a
financial gain, or avoid a financial loss, at the expense of the
client;
(2) has an interest in the outcome of a service
provided to the client or of a transaction carried out on behalf
of the client, which is distinct from the client's interest in
that outcome;
(3) has a financial or other incentive to
favour the interest of another client or group of clients over
the interests of the client;
(4) carries on the same
business as the client; or
(5) receives or will receive
from a person other than the client an inducement in relation to
a service provided to the client, in the form of monies, goods
or services, other than the standard commission or fee for that
service.
According to SYSC 10 of the FSA UK, firms must:
- Take all reasonable steps to prevent conflicts of
interest from giving rise to a material risk of damage to the
interests of clients;
- Implement and operate an effective written policy
for identifying and managing conflicts of interest;
- Specify in the conflicts policy certain procedures
and measures to ensure appropriate independence and further
steps
- If these prove inadequate;
disclose the conflict to the client, if
the arrangements under the firm's policy are not adequate to
prevent material risks of damage to a client; and
- In considering its own policy in respect of its duties to its clients,
take account of any circumstances, of which the firm is or
should be aware, which may give rise to a conflict arising as a
result of the structure and business activities of other members
of the group.
Challenge 3:
You are
not independent.
You do not
report to the CEO.
You do not
have the authority.
Your job is not decided and terminated only from the Board of
Directors.
You are
not able to make a difference.
Challenge 4:
Although
they say that they rely on you, they don't give you
the financial and human resources necessary to do your job, to
educate employees and management, to respond to violations
effectively in a timely manner.
Challenge 5:
You have
no accurate data - there is no effective monitoring and reporting
in place, amd you can do nothing for that.
Challenge 6:
You are not connected
to the operations. You are here "for compliance" (just for show).
You are avoided, and you become isolated. You are not
participating in major decisions.
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