Failure to disclose connected persons and personal relationships as required by firm policies and jurisdictional regulations can lead to significant consequences for both an individual and their firm. Recent events saw two high-profile media executives resign from their jobs because they failed to disclose their relationship under the organization’s disclosure policies, not because of the nature of the relationship itself.
The executives' failure to disclose as required by company policy led to a very public crisis for the organization, job loss for the individuals, and reputational damage for all involved.
Senior executives should lead by example. It’s detrimental to the organization when the most senior person on the organization ignores compliance policy. If a senior executive skirts compliance policies and procedures it sends a message to the organization that compliance is not important. It’s critical that senior leaders set the correct tone from the top. By adhering to compliance policies like filling out required disclosures and completing training leadership demonstrates to employees that compliance requirements are essential for all.
Developing compliance policies and procedures and then ignoring them can look worse to regulators that not having any policy at all. Learn more in our on-demand webinar Minimizing the Risk of CCO Liability featuring Scott Noah from Stevens & Lee.
Even if there’s no improper conduct, failure to disclose employee personal relationships can create a perception that the parties involved are trying to hide something. Workplace relationships can cause an imbalance of power within an organization. They can also lead to very real conflicts of interest, where employees could be exposed to Material Non-Public Information (MNPI) that they might not otherwise know about. Close personal relationships within the ranks of employees also raise the risk, or of the appearance of risk, of conflicts of interest that could unduly influence employment and business decisions. Firms must ensure that business and employment decisions are made using sound management principles and not for personal gain.
Conduct risk from close personal relationships goes beyond just romantic relationships. Other relationships including family members, in-laws, friends, roommates, business associates and neighbors can also provide opportunity for potential conflicts of interest between an employee’s personal interests and their responsibilities within the firm.
Developing an understanding of the potential risk of employee personal relationships starts with clearly defined written policies and procedures that explain what relationships must be disclosed to the firm. Workplace relationship policies must be thoughtful and carefully worded so employees understand what is expected of them. The goal is to uncover and understand opportunities for potential conduct risk within the organization and to take action to ensure a fair, respectful and productive working environment. For example, an employee could be reassigned to eliminate a conflict between a close personal relationship and a supervisory relationship, or an employee could be recused work on a merger if they have a close personal relationship with someone who works at the target company.
Download a copy of our white paper created in conjunction with Coalition Greenwich, Conduct and Compliance: A Collective Approach to Ethics and Accountability, for an examination of how financial services firms are working to encourage an ethical culture and why it matters.
The right compliance technology lays the foundation for a robust employee relationship disclosure process, allowing for consistent collection processing of information. Automation makes the process manageable for both employees and compliance. Technology makes it easier for employees to submit disclosures and send out reminders to encourage adherence. Technology frees compliance up to focus on high-value tasks by eliminating spreadsheets and manual tracking. In addition, automated compliance reporting highlights red flags earlier in the process, allows for analysis of trends and provides proof of adherence to policies and procedures.
The information required on disclosures and who needs to receive them will vary based on employee roles and the individual needs of the firm. An ideal system comes with standard questionnaires and workflows that can be easily customized to meet an organization’s specific requirements.
MCO's Connected Persons & Relationships solution helps firms manage employee personal relationships and better monitor conflicts of interest, detect potential opportunities for market manipulation and mitigate conduct risk.
Understanding connected persons and relationships is just one facet of an employee’s conduct risk profile. Want to learn more about how MCO allows firms to comprehensively manage employee compliance? Contact us today for a demo.
