What Spooked Compliance Officers this year


2020 has been a scary year and there have been a few things that have spooked the most experienced compliance officer. Covid-19 compliance, regulatory updates and deadlines,  and a few large fines and sanctions haunted firms throughout the year. In this blog, we share our thoughts about recent events that unnerved normal compliance operations and should be considered as we move towards 2021.

Reg BI Compliance

When the Jun 30 deadline approached, compliance officers were anxious preparing the requirements for Regulation Best Interest, at the same time, compliance staff were waiting for a deadline extension due to the current Covid-19 crisis.

Some firms were ready to comply while trying to conduct business as usual during this period of uncertainty. Firms worked hard to prepare, and the expectation was to see significant enforcements actions from FINRA and SEC related to failures in continuity planning and working from home.

The Regulation Best Interest requires a certain standard of conduct for broker-dealers when advising customers and recommending any securities transaction or investment strategy. Also, under Reg BI broker-dealer are expected to identify any potential conflicts of interest and financial incentives the broker-dealer may have with those products and provide a brief relationship summary, Form CRS, to investors.

In April, the SEC published two risk alerts providing more information about the scope of the regulation and details of initial examinations for compliance with Reg BI and Form CRS. Then in mid-June, the SEC confirmed the Jun 30 compliance date and asked firms to pay attention to their regulatory obligations.

Overall, preparing for Reg BI compliance in 2020 was challenging; however, firms had no choice, except to prepare for the regulation and improve their mechanics such as documentation, surveillance, the compiling and distributing of Form CRS.

To help firm MCO hosted a webinar with Paul Murdoch and Gus Macedo from MCG Consulting on Practical Steps for Reg BI so you can improve your current mechanics. Watch the on-demand webinar here.

Senior Managers Regimes

COVID-19 also affected the rules and regulations of SMCR and made compliance officers nervous about the UK regime implementation deadlines. The FCA recognized the added complications for financial services to comply with the new regulation and provided support for firms. As a result, the FCA delayed the deadline for solo-regulated firms to resolve the first assessment of the fitness and propriety of their Certified Persons from Dec 9, 2020, until Mar 31, 2021.

“Senior Managers must ensure that Conduct Rules training is effective, so that staff are aware of the Conduct Rules and understand how they apply to them in their jobs. These programmes will require planning, time and effort to deliver effectively.” Says the FCA on Sept 2 when releasing the extension note to the public.

The regime aims to reduce harm to consumers and strengthen market integrity. With the regime, the FCA wants to ensure that employees at all levels are taking responsibility for their actions. The statement of responsibility and focus on good conduct, personal accountability, and responsibility was important for the industry after several scandals showing poor conduct rules in firms.  

Singapore is also currently providing guidelines on individual accountability and conduct. The Monetary Authority of Singapore is proposing that financial institutions identify and describe the responsibilities of senior managers, and there is no exemption for smaller institutions.

The recently published guidelines on Individual Accountability and Conduct identifies five high-level outcomes that financial institutions in Singapore should achieve to ensure that senior managers and employees are held responsible and incentivize a health culture of good conduct within the firm. The Singapore Guidelines are influenced by similar regimes in the UK, Hong Kong and Australia to promote positive conduct in the financial sector, as well as to guide firms on steps to meet the new regime.

Worldwide, regulators are focusing on culture and conduct to ensure organizations have ethical practices in place to ensure customers’ interests are protected and promote accountability. The challenge for compliance officers, in this case, is to guarantee a robust risk management process to support the firm and attend its regulatory requirements.

If you would like to learn more about the MAS Conduct Guidelines, join MCO and Thomson Reuters for a live webinar on Nov 5 at 1 pm Singapore time.  Register here.

Market Abuse Regulations and Enforcements

In 2020, the Market Abuse Regulation was one of the most discussed topics among experts in webinars, blogs and podcasts especially because of prominent risks brought by the crisis and companies’ difficulties to monitor employee’s activities.

The challenge this year was to notice risks beforehand while employees were working from home and take actions to manage the risk of conflicts of interest. In this period compliance had to make sure they had the right controls and preparation to identity conflicts and possible conduct risk in the new environment to mitigate market abuse. The job also involved making employees understand the higher risks and consequences of poor behaviour and misconduct.

After a few analyses, regulators found that firms were delaying the disclosure of inside information, failing to submit transaction reports, and lacking robust systems to detect errors in reporting submitted. These analyses were a result of joint work from regulators to ensure market integrity, business operations and continuity of its core functions during all times and are also reporting several recommendations to help firms to comply with current regulations.

The Market Abuse Regulation remains in force and firms need to meet their regulatory obligations, taking all appropriate steps to identify, prevent and manage conflicts of interest between the firm’s employees, managers, and clients and properly manage insider information. The FCA, ESMA and SEC provided diverse statements saying that firms must continue to make monitoring for insider trading a priority.

We have several blogs on the subject with all regulatory enforcements and updated. To learn more, visit our blog or register for our upcoming webinar in partnership with CeFPro on FCA Compliance to the Market Abuse Regulation.

US Elections and Pay-To-Play Compliance

With the approach to the US Elections after Halloween, political contributions and donations are also a topic have been spooking compliance officers in 2020. The rules around pay-to-play are serious and include fines, lost fees, and reputational damage.

Regulators are closely observing political donations coming from firms and employees; as a result, it’s critical to enforce compliance, monitoring and verification of any political contribution employees and firms are making. The SEC and FINRA current regulation prohibit staff or companies from making contributions to elected officials or political campaigns in the hopes of influencing future business, commonly known as pay-to-play. 

Suppose your firm allows employees making political contributions. In that case, specialists say that it is critical to provide adequate training to guarantee compliance and fully understand rules and regulations around contributions and donations. Regulators do not take the rules slightly, so firms must comply and be certain employees are aware of the risks when it comes to pay-to-play compliance.

We hosted a webinar with Sonia R. Gioseffi from K&L Gates, where she covers what you need to know to understand and manage pay-to-play compliance and other compliance concerns. You can watch this on-demand webinar here.


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