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Confidence and trust form the foundation of every investment advisory firm. As a result, investment advisors that actively foster commitment among employees to do the right thing and what is best for clients enjoy a major advantage over their peers. Firms that foster this culture – a culture of compliance – generate trust and avoid fines, litigation, and, most importantly, damage to their reputations.
Culture Of Compliance
This type of culture begins with leadership. The leadership of a firm must routinely communicates the value it places on integrity and its serious commitment to fulfilling its compliance obligations. As former SEC Chairman Christopher Cox observed in a 2007 speech, “[T]he tone at the top is a major factor in determining the effectiveness of internal controls to prevent fraud, in treating customers, employees, investors and other stakeholders fairly, and in contributing to the long-term success of the organization.”
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In recognition of the significance of the tone at the top, firms can create a committee of senior executives that focus on fostering a culture of compliance. This group, including the chief compliance officer and other senior personnel, can collaborate to improve compliance communications and education throughout the firm. Meeting regularly, perhaps monthly, provides opportunities for the group to address compliance-related issues, develop new compliance initiatives, and stay abreast of legal and regulatory developments.
Though hiring ethical people is an important step in fostering the culture of compliance, a robust compliance process must be in place to reinforce the culture. A major step is helping every employee understand and value the purposes behind their compliance obligations. Given the ever-changing and expanding regulatory landscape, it is important to recognize the need to redouble efforts to keep employees aware of compliance obligations.
One way to improve compliance awareness is by aggregating compliance documents into a single manual. This improves employees’ ability to access policies and procedures. The manual should include most or all of the firm’s compliance policies and procedures as well as the code of ethics. Along with putting these in a single document, including brief introductory paragraphs to each section can ease employees’ ability to find the information they need. Moreover, using plain English and avoiding confusing compliance jargon helps people in every part of the firm understand the manual’s content. Making the manual the central repository of compliance-related documents helps every employee know where to look for answers when compliance questions come up.
Of course, easy access only makes a difference if employees actually use the manual. Periodically sending brief, one-page explanations of compliance topics to all employees can help solve this problem. These pieces summarize topics like a firm’s personal securities trading policy and pay-to-play policy. They can be used to remind all employees of the firm’s and their own compliance obligations. They can also briefly explain the reasons the rules and policies exist and how they relate to the business. Pairing this education with the compliance manual, employees may be more apt to spot compliance issues when they arise and to know where to look – the manual – to understand how to deal with them.
Finally, have a method for ensuring that employees actually receive and read these communications. This can be done using a database or other software to record that employees have read the short compliance topic explanations. For each piece, a firm can create an action item assigned to each employee, and then employees can acknowledge reading it by completing the action. This creates a record of acknowledgements for the compliance department, fulfilling the obligation to have all employees acknowledge annual receipt of these materials.
By Chris Meyer, see the full article here.