In this article, Ben Mason, CEO, My Compliance Centre, argues that Compliance Management Systems can play a very substantial role in assisting Principal firms manage the increased risk of their Appointed Representatives, both through the automation of processes and providing evidence to all stakeholders that compliance is being achieved.
Managing Appointed Representatives using a Compliance Management System
The FCA has recently published its Policy Statement laying out a significant strengthening of its expectations of Principal firms management of their Appointed Representatives. As often happens when rules are rewritten on the back of a substantial market failure, the changes are onerous. For Principal firms to manage their risk efficiently they need to establish a robust ongoing monitoring and compliance programme and have an effective way of delivering it.
Of critical importance is the practical reality that Principal firms will now need to treat all their Appointed Representative’s employees as their own from a compliance perspective – if they were not already doing that. No other approach will provide the requisite evidence that the network is compliance. The implications are significant.
Here are eight (of what could be many) ways in which a Compliance Management System help network Principals de-risk their management of Appointed Representatives.
1. Appointed Representative’s Employee Attestations
Having evidence that Appointed Representative’s employees are aware of and say they are complying with compliance policies can be key both in establishing a compliant regime and as evidence when action needs to be taken when compliance is not achieved.
A Compliance Management System will make it easy to ensure that all of an Appointed Representative’s employees have reviewed and are complying, and attested as such, with the compliance policies that they are obliged follow.
A good Compliance Management System will also offer the option of doing this on a policy-by-policy basis or on a consolidated basis.
Time is further saved when the Compliance Management System automatically sends follow-up e-mails to employees that have not attested, up until they are completed, with a full audit trail being available.
2. Compliance Monitoring and Task Management
All regulated firms must carry out a proportionate level of compliance monitoring. For an Appointed Representatives network, this will involve some monitoring actions being undertaken by the Principal and some by the Appointed Representatives.
A Compliance Management System makes it easy to assign these tasks to named individuals, to see which tasks have and have/not been carried out and will automatically follow-up with non-responsive employees.
Simple on-screen reporting shows exactly what tasks have not been completed, so escalation is much easier, and supports subsequent discussions with the Appointed Representatives should they not be completing their routine monitoring tasks.
3. Financial Promotions
Many firms are obliged to manage their financial promotions as a regulated activity through an approval, logging and renewal process.
A Compliance Management System makes it easy for the principal to control this process. Appointed Representatives will enter all details of each Financial Promotions into the Compliance Management System, which will trigger an approvals process, providing full transparency to regulators and auditors that the Principal has proper oversight of their Appointed Representative’s Financial Promotions.
4. Personal Account Dealing
While Personal Account Dealing is only relevant to the investment sector, it is a critical process for those it affects.
A Compliance Management System makes it easy to control this process, by ensuring that the Principal has full clarity of every trade and every portfolio within their Appointed Representatives network, and thereby mitigates their own risk. An automated security lookup service makes it easy to confirm key details of the securities in question and the Compliance Management System will manage the approvals process.
5. Breaches and Incidents
Central to the Appointed Representatives regime is effective recording and management for all Breaches, to demonstrate to regulators that these are taken seriously and actioned and to record the evidence of an Appointed Representatives compliance or otherwise.
A Compliance Management System allows both Principals and Appointed Representatives to record all Breaches and the corrective actions taken, demonstrating transparency, control and a proactive approach to the management of problems as they arise.
6. Horizon Scanning and Regulatory Change
Regulations change; it is a fact of life. Changing regulations affect the business models of regulated firms and their Appointed Representatives, creating risks and opportunities.
An effective Compliance Management System flags up to the Principal the regulatory changes affecting both their own and their Appointed Representative’s business models. It allows the Principal to distribute this to Appointed Representatives and to ensure they are aware of its implications. A set of actions can be created to ensure that the implications of the regulation change have been taken into account, planned and executed.
7. Compliance Advice
Appointed Representatives often need compliance assistance, and it is the duty of the Principal to provide it. Most often, this advice is given verbally or by e-mail, leaving a difficult to trace audit trail.
However, a Compliance Management System will offer a simple but interactive way to request and receive compliance advice, making it easy to catalogue what was asked and advised, and offering the capability of genericising the advice for the benefit of others.
8. Management Information and Decision Support
The management information provided by a Compliance Management System makes it easy to evidence that your Appointed Representatives are compliant. And, in the unfortunate event that one of them is not, and you need to take action, the Compliance Management System will make it very easy for you to establish and prove to them the reasons why you can no longer be their Principal.