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January 26, 2018 at 04:29 AM
Over the past 15 years, the role of compliance officer in the financial services industry, and its many variations, has experienced a massive evolution. Before the waves of regulation during that period, compliance roles were barely a standalone function. Financial institutions had them, but they were often tucked away deep within the legal department.
New Rules and Regulations
The first catalyst that shifted the compliance function was in 2001 when President George W. Bush signed the USA Patriot Act into law. A portion of this law cracked down on financial institutions and prosecuted various financial crimes, such as international money laundering and corruption. In turn, with more oversight, more industry scandals emerged.
As impropriety in the securities, advisory, asset management, consumer finance, banking and derivatives segments came to light, regulatory change and pressure snowballed. In response, regulation served as the wind to the back of the compliance officer as it rose in prominence. This role quickly became a core component of nearly every financial institution and served as the first line of defense against a complex, evolving regulatory environment.
Now, with the compliance function largely accepted as an independent function, the reporting lines have shifted away from the general counsel’s office to either the chief risk officer or the CEO directly.
Big Banks Made Big Changes to Compliance Departments
Last year turned out to be a noteworthy one for the chief compliance officer. Over the past year, we saw a shift in compliance officers in financial services in terms of tenure, profile and leadership. To put this into perspective, the top 6 largest financial institutions in the U.S. include banks ranging in size from $2.5 trillion to $841 billion in assets, and five of these massive banks changed their leadership in the compliance function during the calendar year. These included JPMorgan Chase, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley.
If you look deeper into these five management changes, some interesting patterns emerge. For example, these newly selected CCOs are not career compliance professionals and all of them will report to the same position they did previously. Four out of the five of them have deep-rooted, proven leadership experience in the finance or internal audit functions for their institutions. Additionally, three of them chose to select an internal successor, and all of them have background in finance or audit.
