Success in the financial services industry requires keeping and maintaining a competitive edge. Compliance, in particular, is a complex and ever-changing industry that demands extensive experience, as well as constant monitoring of new updates, regulations, guidance, and interpretations. The only way to stay ahead is to consistently assess and make improvements. Over the years, I’ve found that even the most vigilant financial firms overlook one key area – their compliance program.
To ensure that your compliance program is providing a competitive advantage, I’ve outlined the following best practices.
Tip #1: Limit the CCO’s Responsibilities to Compliance
For many firms, especially in their infancy, it’s common for leaders to wear many hats. It’s especially common for CCOs to also serve as CFO, COO, or even CEO.
However, having a few people responsible for leading all aspects of the firm is not a successful long-term approach. This leads to less oversight, greater risks, and regulatory concern.
If the CCO is client-facing, he or she may be burdened with non-compliance responsibilities such as managing assets. But when compliance responsibilities require more time and effort, such as preparing for an examination, other aspects of the business such as revenue generating activities can be deprioritized.
To solve this issue, it’s best to either limit the CCO’s responsibilities to solely compliance, or delegate compliance responsibilities to a consultant so your firm can remain focused on strategic priorities.
Tip #2: Customize Compliance Policies and Procedures to Fit Your Firm’s Operating Model
A one-size-fits-all compliance program is not sufficient. It’s important to build out customized policy and procedure manuals, agreements, and compliance calendars that best fit the business and practices of your firm.
Some manuals out there, as extensive as they can be, are more focused on box-ticking and will not be specific enough to address the unique needs of your firm.
Tip #3: Test Compliance Policies and Procedures on an Ongoing Basis
Most firms have never conducted a single forensic test, and 99% of firms don’t have checks and balances in place from inception. It’s not only crucial to have a compliance program that meets your firm’s needs, it’s also important to regularly test that program to ensure effectiveness.
Whether it’s making sure that personal trades run against firm trades or code of ethics policies are up-to-date, your compliance program should be tested routinely throughout the year.
Tip #4: Create Process Efficiencies
Whether hiring outside compliance professionals to bolster a lean team, or implementing regulatory technology, there are many ways to build an efficient, yet effective compliance program. Many firms leverage regulatory technology to automate manual compliance tasks, while consultants can implement best practices and provide strategic insights around program successes or gaps.
Compliance consultants can offer advice based on a large pool of structured and established models, documents, and practices. As such, it’s often easier to get new policies or procedures approved by management when an external source supports those ideas.
By creating process efficiencies through the use of compliance consultants and technology, firms can limit the overall costs of compliance and create a more effective compliance program.
“When you start viewing your compliance program as an opportunity instead of a requirement, the competitive advantages it can provide quickly become evident.”
When your firm puts the appropriate steps in place to prioritize compliance, your firm not only demonstrates a commitment to ethical behavior to regulators, but also to your clients. In a highly competitive fundraising environment, an efficient and effective compliance program is a must-have to secure new capital. Limited Partners want to invest in ethical safe funds, and your firm can more effectively demonstrate this with a well-thought-out compliance program.
Ultimately, firm success depends on robust compliance policies and procedures. An SEC enforcement action can have significant and costly consequences. Unless you invest in compliance, your firm may lose its competitive edge.