Along with its monitoring and reporting obligations, the Compliance Function should fulfil its advisory responsibilities by assisting and guiding the relevant persons responsible for carrying out investment services and activities within the regulated entity. The compliance with the regulatory obligations is a matter that should concern everyone in a company without being restricted to the job description of the Compliance Function only. Therefore, it is crucial that the regulated entity instils a culture of compliance and that the right tone is set from the top management to the people that undertake the day-to-day decisions. Their qualities, ethic, acts, and deeds establish the environment in which the compliance matters are handled and the regulatory obligations under MIFID II are met.
The compliance culture is not something that can be monitored or mitigated with control measures, but can be promoted and enhanced by reinforcing the accountability of the relevant staff within the regulated entity and by providing adequate and frequent training. The Compliance Function should support in the provision of training to the staff involved directly or indirectly in the provision of investment services and, as recommended by ESMA, the Compliance Function should monitor particularly training received on the internal policies and procedures of the regulated entity, its organisational structure, MiFID, the relevant national laws, the applicable standards and guidelines, as well as any other supervisory and regulatory requirements that may be relevant to the activity of the company.
The relevant staff, specific business units, or particular individuals might have a different level of understating and familiarity in the area of investment services and activities carried out by the licenced entity. Thus, the Compliance Function should periodically assess the level of awareness and monitor the provision of training in those areas that require further improvement to ensure that the staff correctly apply the policies and procedures of the firm.
In addition, the Compliance Function should collaborate closely with operative units in the business to provide counsel on compliance and regulatory aspects arising in day to day business and other operational decisions. Some examples include advising on matters related to the suitability assessments, sale and selling practices, how to best apply technology in accordance with regulation, and how to address issues concerning conflict of interest. Furthermore, it is the responsibility of the Compliance Function to provide insight on the perspective of competent authorities regarding regulatory matters, including market integrity, financial soundness, and the fair treatment of customers.
As the role of compliance becomes more encompassing, the licensed entities should ensure that the boundaries of accountability and responsibility of the Compliance Function are clear, to avoid the risk of diluting the seniority and command of the role of the Compliance Function to a point where it is no longer able to safeguard against breaches. A duly established description of his responsibilities and prerogatives, explicitly included in the internal policies, might be a good start to ensure the adequate seniority and command of the Compliance Function and to avoid such function being involved in matters that should not fall within its realm.
Another area of responsibility of the Compliance Function is governance over, and actively advising on, the drafting and introduction of policies and procedures within the firm. Areas such as product governance, investment policy, remuneration policy, outsourcing policy, contingency and recovery plans, and data protection constitute only a few examples of the frameworks that the Compliance Function should get involved in their development and implementation.
In addition, all significant business reorganisation matters concerning the investment services, activities, and ancillary services carried out by the regulated entity should also be under the purview of the Compliance Function. This is crucial in instances where the firm is planning to introduce new financial products and instruments and other business lines, where it is the responsibility of the Compliance Function to monitor such developments and engage in these processes with the support of senior management to ensure that such reorganisation does not affect the compliance status of the firm.
It is also imperative that when interacting with the competent authorities, for both routine and non-routine material correspondence, the regulated entities involve the Compliance Function in order to properly frame such correspondence while keeping the Compliance Function abreast of any and all submissions affected and material developments within the firm.
In conclusion, it is important to highlight that the advice and the actions of the Compliance Function should be documented, particularly in cases where the advice is not followed and subsequently presented to the management board in the compliance reports.
The information contained in this write up is provided for general informational purposes only. It does not, and is not intended to, constitute legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this write up without seeking legal or other professional advice for your individual situation.
