How the compliance officer’s role is changing

Two financial consultancies, Duff & Phelps and Synechron, have commented on the changing role of the chief compliance officer (CCO) within financial institutions.

According to Julian Korek, global head of compliance and regulatory consulting at Duff & Phelps: “A CCO today needs to have board level competencies that rival those of the chief operating officer and chief financial officer. They need to have the stature within the business to get what they need, not only to help comply with regulation but also to grow the business.

“Therefore, the ability to get access to the necessary resource needed to fulfil regulatory obligations is becoming more important. We’ve seen a bank’s head of compliance leave the organisation because they failed to gather the necessary budget to improve compliance controls, even as the bank faced severe regulatory penalties.

“With compliance costs set to more than double for financial institutions in the next five years, the way CCOs resource their compliance budgets is also changing. As such, budgeting and forecasting skills are paramount. In short, a CCO can no longer just be a master of regulatory rules, they need to also have stature in the business and sincere business acumen.”

Keeping up with innovation

“Compliance has traditionally played a second line of defence role at banks where the team is often only engaged when issues have already surfaced,” says Jennyfer Stanley, senior director at Synechron Business Consulting.

“However, with investment products now becoming more complex, operational changes underway, and the regular introduction of new technology, the CCO needs to ensure that compliance is keeping abreast of technical innovation in the banking sector, such as artificial intelligence (AI) or blockchain, as well as upcoming regulation.

“This requires CCOs and their staff to change the culture within their firms and reposition themselves from being “just” a second line of defence to a central guiding force in future business and technology decisions. If they can be in the forefront working alongside the business to identify and establish the appropriate controls needed to protect the bank and its customers as they embrace new innovations, this will minimise issues down the line.

“For this to be effective, operational controls and clear metrics should be agreed upon and established in advance, and just more importantly, there needs to be a culture that continuous reviews these metrics and takes appropriate actions as problems arise.

“The compliance function also needs to rely on tooling that is available in the market today to help sift through the plethora of data that inundates the business on a daily basis and to provide visibility into potential problem areas. If sufficient technology is not available, they need to consider how they can build custom solutions to address the gap.”

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