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Failing compliance has become a personal matter

Author Business Systems UK
Category Compliance

Failing to comply with regulations does not just affect the reputation of a business, which can lead to loss of profit and market share; it personally affects those in charge of the business. In a world where super-size fines no longer shock or deter bad practices, regulators have moved on to using a wider range of measures to ensure compliant behaviour from both firms and individuals.

A Global Survey on Reputation risk by Deloitte, found that responsibility for reputation risk resides at the highest levels of the organisation with 36% of respondents identifying the Chief Executive Office (CEO) of any company as the individual with primary responsibility for managing reputational risk and 21% the Chief Risk Officer (CRO).

Due to the recent financial crisis, regulators have recognised the need to fundamentally change the behaviour of financial firms. In the UK, the Financial Conduct Authority (FCA) is holding individuals in senior positions personally accountable any compliance breach as well as the culture within their firm. It has become routine for senior executives to be named, shamed and often dismissed as part of a big enforcement case, the purpose being that even if they are not facing personal fines, their reputation, career and future prospects have been permanently damaged.

2013, was the first year the UK Financial Conduct Authority, sanctioned more individuals than firms

In January 2015, two former senior executives of Martin Brokers were personally fined a total of £315,000 and banned from performing significant influence functions at any FCA authorised firm. The FCA found that the directors failed to recognise the risk of the culture developing at Martins and to take any reasonable steps towards preventing it.

According to Georgina Philippou, acting director of enforcement and market oversight at the FCA, the two directors were responsible for setting the right culture within the firm as well as ensuring that the risk management and controls were adequate. Having failed to do so and ensure compliance, they were both held responsible for misconduct within the firm.

This example serves as a clear warning for anyone holding a significant influence function in any firm, that if a firm’s misconduct can be attributed to cultural failings, senior management can be held personally responsible and will answer for it, even if not directly involved. According to the OpenText survey, reputational risk is twice as significant as a driver for compliance (44 percent) versus avoiding fines and penalties (20 percent).  While firms all too often see enforcement action as simply another cost of doing business, when an individual is targeted, it is more likely they will work in unison to defend themselves from what could be a career-ending penalty.

One of the key measures financial institutions are taking in order to ensure that traders are not abusing the system, is technology assisted. A recent report from PWC discovered that banks plan to spend £158m on surveillance technology over the next 18 months.

There has been an increase interest towards Speech Analytics as it provides the necessary means to easily isolate concerning calls as well as quickly find and retrieve old calls that are being requested by compliance officers. Speech analytics technology has progressed tremendously over the past few years and its ability to accurately analyse calls has improved sufficiently to make it a real benefit to Compliance departments. The key for making it truly useful is for financial institutions to take the time and think not only about exact words or phrases they want to capture but also context.

With current regulations, such as Markets in Financial Instruments Directive (MIFID II) and the Market Abuse Regulation (MAR II), firms will need to respond to compliance requests within 72 hours, making it an impossible task without the right technology in place.
There are at least 16 distinct areas that present risk for non-compliance and which can be summarised as follows:


  • Monetary fines
  • End of a business or business line
  • Increased capital, liquidity or solvency requirements
  • Impact on share price
  • Competitive disadvantages
  • Opportunity costs of non-compliance


  • Increased personal liability
  • Forced changes to senior management
  • Need for more highly-priced risk and compliance skills
  • Claw-backs invoked on bonuses


  • Expensive and time-consuming remedial actions including redress
  • Enforced changes to business
  • Expensive and time-consuming use of third party or skilled persons
  • Inability to recruit and retain high quality skilled resources


  • Greater regulatory scrutiny
  • More regulation, cost and complexity for all

Don’t let compliance regulations catch you off guard. Ensure you are able not only to comply and provide the information requested in full, but also prevent potential breach of compliance by proactively spotting risky behaviours and correct them before they become real threats to the firm and its employees.