Explaining the mysterious world of company compliance
By Dorina Mastora
In recent years ‘compliance’ has become something of a buzz word in governmental, business and professional circles, whilst a perceived lack of ‘compliance’ can result in negative news headlines and the downfall of organisations and many a public figure.
It was the non-compliance of former UK minister, Nadhim Zahawi, with ministerial codes that angered many colleagues and forced his recent removal from office rather than his actual tax indiscretions. Indeed, the concept of ‘compliance’ has become crucial to organisations and individuals alike; spawning an entirely new profession, that of the compliance officer. In fact most large organisations will now house entire departments of this once rare breed, leading many to ask just what is their role and what are we all meant to be complying with?
Role of a compliance officer
Legal compliance is adherence to all relevant national and international laws and regulations. At its simplest, the role of compliance officers is to ensure that the organisation that they work for is doing this. To this end they will tend to be involved in setting and monitoring internal policies and procedures designed to keep the organisation ‘on track’ and following best practices. Their role is one of constant evolution since they must always be cognisant of the latest laws and regulations and be able to transpose these into procedures for the compliant operation of the organisation.
Broken down into its basic components compliance deals with identification and prevention of breaches, errors and omissions, systems monitoring, advisory input on systems and procedures, and reporting on compliance performance.
However, one aspect of compliance, and that of the role of the compliance officer, that is frequently overlooked and yet is its raison d’être, is that compliance fosters trust on the part of organisations, businesses and individuals with whom one may wish to work or do business with. One of the most important factors in profitability is the trust built with customers and suppliers. Publicly demonstrable adherence to, for example, production standards, anti-money laundering procedures, tax laws, health and safety regulations and economic sanctions demonstrate professionalism and promote trust in an organisation.
In business, trust builds brand and supplier loyalty creating long term profitable relationships to the benefit of all. Trust in governments and institutions inspires confidence in them and support for them. Loss of trust can be a difficult and sometimes impossible issue to resolve – as Gerald Ratner can testify to the collapse of his multimillion pound company when he gave a public speech in which he described his company jewellery products as “crap”.
Thus whilst many might think of compliance and compliance officers as, at best a necessary evil, it might behove them to rebadge both as a significant asset!
Gemini of the professional world
Many employees (sometimes including executives) will regard a compliance officer as the ‘bad guy’ within their organisation. He, or she, is the person often viewed as adding ‘unnecessary’ bureaucracy and irritating steps to a task. In all honesty few people readily take to the idea that their actions are being controlled, and within an organisation colleagues may resent feeling as if they are being constantly watched. To them the compliance officer can often be regarded as an irritant getting in the way of job performance since, he is always there to ask for more information, more documents and yet another ‘know your customer’ file! This can result in an ‘us’ and ‘them’ culture where some staff feel that they are the ones ‘producing’ for the organisation whilst regarding the compliance team as being parasitical.
Nor is this negative view always confined to those within the organisation. Which of us has not cursed when put through a series of questions and checks before we can ask our bank a simple question on the phone? How many of us have felt frustrated by having to repeatedly prove our identity to an organisation we may have dealt with for decades? Indeed many of us will often wonder out loud at why, when we are performing a straightforward legal transaction with our own legally obtained funds, we have to jump through quite so many hoops?
Yet that same ‘bad guy’ is also the ‘good guy’ that protects us. Many of us have cause to thank the compliance individuals and systems that identify abnormal transactions on our accounts and seek verification from us that they are legitimate rather than the result of theft or fraud. When company data breaches are announced in the press are we not glad that the businesses we work for or trade with have systems to safeguard against such events? Do we not like to be confident that the house or business that we think we have just acquired did actually belong to the person who ‘sold’ it? Is it not preferable to be sure that money you receive is ‘clean’ rather than laundered?
Without our ‘bad guys’ we can have no such assurance and the negative consequences of a compliance breach can have catastrophic and/or costly effects. Enron’s downfall, and the imprisonment of several members of its leadership group, was one of the most shocking and widely reported ethics compliance violations of all time. It not only bankrupted the company but also destroyed Arthur Andersen, one of the largest audit firms in the world. In 2021 ABN Amro (€480m), NatWest Bank (£264m), Deutsche Bank (€120m), JP Morgan ($125m) and Credit Suisse (£147m) all received hefty fines for various historic compliance failures which also harmed them reputationally.
In short, it could be asserted that the compliance officer should not be perceived as the ‘enemy’ within but rather as an essential component of an organisation, helping to ensure legality and to generate, reputation, trust and profitability.
A good compliance officer
A compliance system is only as good as its components, so what makes an individual suitable for a career in compliance? As with any task, a role is best performed by those who actually love doing it and see the value of their role. It is said that a successful compliance officer always remembers the mission, “Follow the guidelines” and “A job done with care and compassion, is a job done well!”
However, it is not a job that everybody is suited to. The following must be regarded as important basic skills.
- The ability to interact with people in a positive constructive manner. They must be able to build relationships based on trust inside and outside the organisation and have the ability to alter the perception of the compliance function from that of a burden to that of a benefit.
- The ability to fully understand problem issues that may arise and help find an alternative solution without risking of breaching the rules.
- The possession of managerial skills and confidence in handling data. There is a need to be to be optimistic, creative, take initiatives and mitigate risk.
- An ability to recognise the ‘big picture’ and embrace change. A good compliance officer must be a step ahead and foresee changes (e.g. the rise of online processing, the emergence of crypto assets etc) and take measures to adapt policies and procedures in order to protect the company in light of those changes.
- The ability to balance commercial and regulatory risks by understanding the laws relevant to their organisation
- The ability to conflict manage. Demonstrating good emotional intelligence with colleagues will help spread a positive compliance culture among them.
However, above all this, the attributes which are most essential are personal integrity and courage. The actions of a compliance officer must be above reproach and, if necessary to ensure compliance, they must be willing to stand up to the most senior people within their organisation. They must not allow themselves to be bullied out of doing ‘the right thing’ even if there is a chance that it may cost them their position. Certainly, pensioners and employees from the Mirror News Group fiasco would have welcomed the intervention of a strong compliance team to counter the bullying nature of Robert Maxwell and insist on proper financial controls and corporate governance.
The ideal compliance officer is the sheriff and not the gunslinger. They are a person who has good judgement and takes professional satisfaction when observing that all their clients within and without the organisation are, as the old Italian saying goes, “Sani e salvi” (safe and sound).
So the next time you feel inclined to vent frustration at the ‘compliance’ systems you encounter, and the individuals operating them, it might be time to pause and think just what might happen without them!
Dorina Mastora is deputy compliance officer at Elias Neocleous & Co LLC