The Evolving Role of Compliance
SIFMA, the SIFMA Compliance & Legal Society, and SIFMA’s Compliance and Regulatory Policy Committee publish The Evolving Role of Compliance.
The Evolving Role of Compliance builds upon another White Paper on The Role of Compliance that the Securities Industry Association (the predecessor organization to SIFMA) Compliance & Legal Division issued in 2005. The 2005 White Paper discussed the role that the Compliance Department plays in support of securities firms’ efforts to develop and maintain an effective overall compliance program.
Since the publication of the 2005 White Paper, multiple forces have impacted the financial services industry – the 2008 financial crisis, globalization, the use of new technologies, and new, complex and expanded regulatory requirements. These events have had an equally significant impact on the role of compliance within securities firms.
The Evolving Role of Compliance discusses the changing role of the compliance function in securities firms in light of these events and explores the challenges that firms and their compliance professionals currently face on a daily basis. This White Paper also offers recommendations to assist senior management, regulators and compliance personnel in defining the appropriate role of compliance in an increasingly complex and variable environment.
Excerpt
Introduction
In 2005, the Securities Industry Association issued a White Paper on the Role of Compliance that provided an extensive account of the role that the Compliance Department plays in support of securities firms’ efforts to develop and maintain an effective overall compliance program. 1 Because Compliance is historically a creature of evolution rather than prescriptive legislative or regulatory requirements,2 the Compliance function continues to develop over time in response to changes in market operations, business practices and new regulatory mandates.
Since the publication of the 2005 White Paper, the securities industry has experienced change unmatched in the recent history of financial services. The 2008 financial crisis has been the catalyst to much of this transformation. For instance, in the United States, lawmakers and regulators have realigned or expanded their authority over many aspects of the financial industry, and extensive new rulemaking will continue to alter or limit business activities. Substantial changes also have been triggered by the natural evolution of the securities business, such as the globalization of business activities, the reshaping of business support through outsourcing and off-shoring, and the rapid adoption of new technology in the form of trading, communications and other systems. The confluence of business evolution and the consequences of the financial crisis have led to additional developments, including the adoption of more standards and rules of cross-border and extraterritorial applicability and an increased focus on cost discipline.
These changes to the context in which Compliance operates tell only part of the story of the increasingly complex world that the Compliance officer inhabits. The Compliance officer role itself has moved to center stage. As one Securities and Exchange Commission (“SEC”) official explained, the financial crisis revealed “the need for stronger independence, standing and authority among a firm’s internal risk management, control and compliance functions.”3 Most prominent among legislative initiatives, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”) addresses these concerns by assigning significantly increased responsibilities to Compliance and by requiring closer involvement of Compliance with day-to-day business operations and decisions.4