Compliance - What does it mean?

„Everything should be made as simple as possible but not simpler.“

Albert Einstein


Compliance is a fashionable subject but it is not temporary. There are more important „September issues“ but these are brought about by regulatory changes or the uncovering of incidents in the financial sector. If perceived as an outside impact, there is some seasonality in that sense. If recognized as a structural operating principle, it is just a long, tranquil river and experienced boatsmen can get ahead of the tide.

For many in the financial sector including asset management, Compliance is still a drag. It need not be. Structural compliance i.e. procedurally integrated compliance makes it easier - and better. The usual question „make or buy?“ can only apply to an initial concept if not yet in place. If necessary, buy some elements but essentially mould them, i.e make it - thus have it structural. This also obviates the question whether one should have as much ‚Compliance‘ as necessary (ie dictated by the regulations) or as possible (to be safe) - as if it was a contagion besetting business operations.

If Compliance is made simple because it is integrated and flows naturally with the processes, it is made as simple as possible. Because it is a regulatory subject at inception, there is a lower threshold in terms of substance. It can be integrated but must not be diluted and these two are not two sides of the same coin.

Asset managers in funds need to be smarter than the trading desks in banks were . It is not about fending off regulators by stone-walling but it is about embracing regulation. Embracing means being able  and willing to handle. Handling is best done by means of robust organisational and procedural frames, ie structural incorporation of regulatory compliance.

Do organisations want to be compliant with externally set rules? Not naturally but smart process design can help to make it feel natural. More than that, together with lessons learnt from Organizational Behavior people in organizations can be motivated - and even go beyond that.

This brings up the question of how integrated Compliance should be in asset management or trading operations. The answer is: procedurally very integrated - this pertains to standard processes. Concrete action in single cases must however be carried out completely independently.

Checks and balances or the separation of powers

Legal should be part of business operations. Compliance must feature as well in business but not as something to be thrown into the mix. If it is, it usually results in having Compliance inflated like a balloon and featuring as much as possible instead of as much as necessary. Thus it becomes counterproductive. It is not to be grafted upon but cultivated, hence the word Compliance culture.

Culture is not religion. Culture determines our everyday behavior in a subtle, unassuming way. This is the goal of Compliance. True Compliance knows no idolatry.

This is why procedures matter, first and foremost. But they must be and be perceived as natural, logical and not overbearing.

Compliance is regulation-induced and not a soft subject. Ingraining Compliance in the culture of an organization, not just as whistleblowing but as a setup - the term meant as in structure, not as in trap - makes it a „soft“ subject - soft as in flexible, not as in easy, because in this regard, people are a soft matter.

Where Compliance needs to provide guidance, should it lead in front or from behind?

This is generally an important question and relates to organizational behavior generally.

Clever management leads from behind but if you need more hands-on leadership, let it be structural i.e. procedural. Apply the Starbucks principle of bringing processes as close to the client/officer/trade as possible - thoughtfully. Otherwise, it is difficult to stay the course. Remember that not just people,also processes can spin out of control (and purpose). Compliance matters are a usual suspect for this.

For asset management, be careful when sorting assets - remember the START-method as described under Asset Management according to Compliance parameters and when designing escalation processes. What needs doing to be efficient is matching resources with assets. Mismatches of people and tasks/roles are always wasteful.

The experience fallacy

Sometimes experience is just another word for witnessing a display of events - watching situations pass by without understanding their causes and make-up. Events turns into valuable experience only if matters are - often unwittingly - mentally processed and perhaps applied only later when the need arises. This is fair enough for individuals. The master level, the black belt of experience comes when organisations come to learn or truly "experience". This gives a whole new meaning to the MiFiD term of systematic internaliser and by the way, this is also important for Compliance functions. Too many organisations keep making the same mistakes over and over again and any improvement is piecemeal and by accident rather than systematic. TPS - the Toyota Production System is a rare exception and not easily replicable in financial services.

Becoming a systematic internaliser would be crowning the Starbucks principle of bringing the systematic process as close to the client interface point as possible. Take a leaf from Starbucks book beyond coffee making. Or take one from Aristotle, Nicomacean Ethics and lead a (more) contemplative lifestyle as an organisation.

Here, the link between Organizational Behavior and Compliance becomes obvious (one of those occasions). Be naturally compliant by employing OB considerations. Do it reasonably, sine ira et studio. This is no religion.

Again, procedures matter, rites do not.

Compliance is regulation-induced and not a soft subject. Ingraining Compliance in the culture of an organization, not just as whistleblowing but as a setup - as in structure, not as in trap - makes it a „soft“ subject - soft as in flexible, not as in easy, because in this regard, people are a soft matter.