11/10/2018 | AFME
The Scope and Evolution of Compliance
Compliance functions in wholesale banks and brokers will potentially face significant changes in the next few years. The availability of more complex data may allow compliance to adopt different ways of managing risks, for example, anticipating or predicting risk events more proactively. However, this is likely to result in broader demands and higher expectations from compliance’s stakeholders, with new skill sets required to maximise the resultant data and technology advances that ensue.
This, coupled with an evolution in the traditional three lines of defence model1, presents compliance with both challenges and opportunities.
Following the implementation of changes resulting from Market Abuse Regulation (MAR), MiFID II and the 4th and 5th Anti-Money Laundering Directives, and with an impending Brexit, now is the right time to consider the role of compliance, and the potential challenges and changes it faces in its structure and approach. In partnership with EY, AFME has undertaken a detailed assessment of how its members organise and manage their compliance affairs and presents options as to how compliance frameworks could evolve in the future.
This report highlights:
• How compliance responsibilities are currently apportioned and how challenges are generally currently addressed. It considers how compliance identifies and assesses risks, provides advisory oversight and challenge to the business, and manages the relationships with conduct regulators.
• Future opportunities and challenges for compliance and how it may seek to adapt and enhance its role in supporting senior management to address new and changing regulatory risks. We consider how compliance’s effectiveness can be further enhanced by changes to approach, use of technology and changing skill sets.
The way in which the three lines of defence interact with each other will differ by firm depending on size, complexity, business model and geographical location. However, the third line of control is not expressly dealt with in this report.
AFME represents European wholesale firms and this paper is designed for these. Although much of what follows is relevant across the industry, global firms will have to take account of differences of local law and regulation in planning their strategy.
There may be other ways of achieving the compliance function’s purpose of planning for the future. This report provides some ideas but nothing in it purports to be prescriptive.