On the face of it, the idea of marrying operations and compliance seems natural. But such a marriage is not about combining two separate functions into one. Rather, it is about integrating and leveraging for the compliance function.
The roles of compliance and operations are built on different models and serve different and equally important purposes, with many firms taking a silo approach to the two functions, however, the two roles are inextricably linked.
In the SEC’s November 14 CCO Outreach Seminar for Chief Compliance Officers of RIAs, one of the leading topics was “Compliance and Operations–The Importance of Synergy.” Regulators are looking to compliance officers to become more innovative in their approach through the integration of compliance and operations. Through integration, a compliance team’s ability to operate more proactively to detect, prevent, and respond to potential securities violations is significantly enhanced. With regulators looking to compliance officers to proactively detect and prevent wrongdoing, compliance must move beyond its traditional advisory role and synergize with operations.
Today’s complex investment management industry brings compliance officers face to face with a myriad of regulations, quickly changing markets, the growing use of technology, and the difficult task of addressing all the required regulatory requirements. The point was driven home by Lori Richards director of the SEC’s Office of Compliance Inspections and Examinations in a speech at the National Society of Compliance Professionals 2007 Membership Meeting. Richard noted that, “In the past, I’ve thought that the operational aspects of compliance didn’t receive the attention they deserved, and that too much focus was placed on discrete legal requirements–too much on the end result and not enough on the how-to.”
Richards continued that, “compliance plays an operational role and has a toolkit that is different from that used by lawyers in a firm’s legal department.” In this increasingly complex environment, then, to effectively detect and prevent violations from occurring, compliance officers need to have a compliance program that works on a real-time basis and leverages other business functions for compliance efforts.
In order to succeed as a business grows, compliance officers must remain abreast of the operational developments affecting their firm, leverage operations functions to complete compliance tasks, and fully exploit the synergies that exist between compliance and operations.
One of the primary areas where synergies can be maximized is in trading. Accurate, efficient transaction processing and reconciliations are key operations goals. Compliance’s goals include best execution, trade error detection, fair and equitable trade aggregation and allocation, and adherence to client guideliness.