complianceCompliance an important topic because investment companies are considered the instrument of choice for the least sophisticated, and therefore most vulnerable, investors. Investment company distributions must comply with far more oversight than those of any other form of security.


Compliance cost refers to all the expenses that a firm incurs in order to adhere to industry regulations. Costs include salaries of people working in compliance, time and money spent on reporting, new systems required to meet retention and so on. These costs typically increase as the regulation around an industry increases. Compliance costs can be incurred as a result of local, national and international regulations, and they generally increase as a company operates in more jurisdictions. Global companies that have operations in jurisdictions all over the world with varying regulatory regimes naturally face much higher compliance costs than a company operating solely in one location.

Such costs are often mixed up with regulatory risk and conduct costs. Regulatory risk is the risk that all companies face due to potential changes in the rules going forward and conduct costs are the fees and payments a company makes for breaking the current regulations.

Compliance Department

The compliance department within a brokerage firm, bank or financial institution is designed to ensure compliance with all applicable laws, rules and regulations. Depending on the business of the financial institution, these duties may range from monitoring trading activity, preventing conflicts of interest and adhering to regulations at brokerage firms to preventing money laundering and potential tax evasion at large banks.

As a firm’s internal police force, the compliance department is unlikely to be the most popular unit in a firm. However, a competent compliance department is of the utmost importance in maintaining a firm’s integrity and reputation.
Compliance demands for most financial firms increased regulatory oversight significantly in the wake of the 2008 credit crisis. This has led to increased demand for experienced compliance staff.

Department Duties

The job of this department is to be proactive within the company and prevent possible non-compliant actions before consequences occur. Special software exists that may monitor all incoming and outgoing communications employees have with the public. Emails may be flagged if certain key words. Written correspondence is usually checked to make sure the proper disclosures are present and the content is suitable. All written correspondence, mailed or faxed, is also photocopied and retained by the department for future reference.

Compliance Officer

A compliance officer is an employee whose responsibilities include ensuring the company complies with its outside regulatory requirements and internal policies. He may review and set standards for outside communications by requiring disclaimers in emails or may examine facilities to ensure they are accessible and safe. They may also design or update internal policies to mitigate the risk of the company breaking laws and regulations, and lead internal audits of procedures.

In the event of a regulatory breach occurring, it is important for the officer to have appropriate disciplinary measures in place to avoid a future recurrence. It is the officer’s duty to ensure procedures are continually monitored and reviewed to help identify possible areas where improvements could be made. Officers are expected to provide an objective view of company policies. Influence by other employees, including management and executives, to overlook infractions may result in significant fines or sanctions and reputational damage that may lead to financial loss or even business closure.

A compliance officer requires a unique skill set to ensure a company’s operations fully comply with regulations and procedures. It is critical that the officer possesses high ethical standards and honesty as he is responsible for ensuring a company adheres to required regulations. Compliance officers are continually reviewing the work of others; therefore, it is essential they have polished people skills and work well with colleagues; appeasing colleagues must not take precedence over a company’s regulations being met. Compliance officers need to be reliable, showing commitment and unity in relation to a company’s regulations and procedures; it is crucial they demonstrate this to colleagues, leading by example. Compliance officers must have strong attention to detail; they need the ability to notice actions that may result in a liability.

Compliance Program

A compliance program is a set of internal policies and procedures of a company to comply with laws, rules and regulations, or to uphold business reputation.

Principal financial regulators are the Federal Reserve Board, Securities and Exchange Commission (SEC), and the Financial Industry Regulatory Authority (FINRA). These and others have established requirements that must be followed, where applicable and in varying degrees, by banks, broker-dealers, asset managers and other financial institutions. Compliance programs have grown in importance in the financial industry since the shock of the financial crisis, but vehement complaints of bankers have found receptive ears of Republicans in federal government. There have been concerted efforts to roll back regulations designed to keep some participants in the financial sector from overplaying their self-interested urges, but the push and pull of politics in D.C. make it unclear what changes, if any, will ultimately result.

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