3 Commonly Held Misconceptions about the Compliance Department

Every now and again I get asked what I do for a living.  When I say ‘I work in Compliance’, the response I receive from those who do not work in a regulated sector is often ‘I have no idea what that is’!  From those who do work in finance or a similar industry, the retort may well be something along the lines of ‘ah, so you’re the business prevention unit!’, a sarcastic ‘how thrilling for you’, and on occasion a moan about Compliance people making their working life far more difficult than it needs to be.

It turns out that in some quarters Compliance has a bad rep!  This is very disconcerting because we really are very nice, so I thought I would take this opportunity to debunk three common misconceptions about the Compliance Department.

1. Compliance Department = Business Prevention

Everyone knows that the Compliance department of a company should really be called the ‘business prevention unit’, right?  Well no actually, it is quite the opposite.  A more fitting description would be ‘business protection’ and that is not just an attempt at some positive Compliance PR!

A good Compliance department is there to help protect the business from the types of risks that could hurt the business’ reputation, or cause it to be hit with punitive fines from a regulator or other authority (name me a major bank that hasn’t been in recent years), or in a worst-case scenario, prevent it from operating.

The Compliance department is there to make sure the business knows the risks associated with a particular activity so that it can make an informed decision on whether it is worth the reward.  We are not just sitting here trying to find a reason to reject a piece of new business…which leads me on to the next commonly held misconception.

2. ‘It’s my job to say no’

To be fair, I have occasionally seen Compliance Officers quoted in the media and in articles as saying this, which leads me to think they must have either been:

  • misquoted;
  • taken badly out of context; or
  • deliberately trying to be controversial.

If someone working in Compliance genuinely has ‘no’ as their go-to mission statement then they are unlikely to be the right person for the job.  That sort of attitude and approach is just going to create conflict between the Compliance department and other business areas, and a poor working relationship between departments can increase the chance of things going wrong or unreported.  Of course, if there is something that I am not happy with then I will be advising against it, however looking for a no is never going to be my start point.

3. Compliance is a drain on profits

Compliance is predominantly a back-office department and as such it does not normally generate an income stream for the company, or if it does, then it is generally not enough to cover the costs of employing those that work in the department.  The perception therefore can be that the Compliance department is an expensive undertaking that a company has to have in order to be allowed to conduct its business.  However, whilst the Compliance department may not be generating income it should be adding value to a company in other ways, for example:

  • The regulatory burden on financial businesses keeps intensifying, is increasingly complex and is subject to change. A good Compliance department will ensure that a company is up-to-date and preserves its good standing.  If a company is in good standing then it should be perceived to be of lower risk by the regulator and could receive less obvious and onerous regulatory oversight (reducing the impact on time and resource) than companies at the other end of the spectrum.  The company is also going to be less likely to breach regulations or suffer unexpected costs associated with regulatory failings.
  • A good reputation can lead to more business being placed with the company. If a company has been on the receiving end of some bad press or been fined or sanctioned then it may not be trusted as an institution to look after a client’s financial affairs, money and assets.
  • Compliance departments through internal reviews can identify gaps in processes and controls which could have resulted in errors with a financial cost.
  • By providing timely, relevant and reliable information to senior management, Compliance departments can help a company make quality, informed decisions.
  • Efficient processes and procedures can provide a competitive advantage over other companies. For example all regulated companies have to comply with anti-money laundering/due diligence requirements for any new business relationship, however exactly how a company meets those obligations will vary in practice.  A Compliance department that has implemented a streamlined approach to client on boarding is going to appeal more to a potential customer than other companies in which the process appears overly burdensome.

A fully functioning, skilled and effective Compliance department should be seen as a good investment for a company, not just a mandatory requirement of doing business.

Written by:

Nathan Holden
Manager – Compliance & Risk, Abacus Trust Company Limited