The contemporary regulatory environment has ushered in an era where the financial penalties and reputational damage of regulatory fines are intolerable for firms. The 2023 Starling Compendium emphasises that firms must instate processes to deter misconduct before it even occurs.
My Compliance Office (MCO), which offers affordable, easy-to-use, compliance technology, recently delved into how firms can take a forward-looking view to manage conflicts of interest.
At the heart of most regulatory compliance issues are conflicts of interest. Meeting regulatory demands requires more than just reacting to conflicts of interest; it necessitates a predictive and preventative mindset. The utilisation of the right technology can empower firms with a proactive approach that aligns with regulators’ expectations.
The 2023 Starling Compendium has stated, “It is no longer acceptable for firms and their leaders to remedy misconduct after the fact. Instead, they are increasingly expected to prevent misdeeds or mishaps from occurring. This push comes both from aggrieved shareholders, tired of bearing the attendant costs, and in the form of regulatory and legislative requirements that seek to establish a ‘duty’ to prevent stakeholder harm.”
Conflicts often surface when an employee’s personal interests affect their professional conduct. Succumbing to such interests can inflict fines and reputational damage on both the individual and the firm. The SEC has recently sanctioned several firms and individuals for such conflicts, including overcharging fees, failure to disclose relationships, and non-disclosure of ownership in SPACs.
Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit, stated, “Investment professionals must be forthcoming about any conflicts of interest they may have with the companies in which they invest client funds, including situations involving favors or assistance to family members. Investors must be able to know that the advice they receive is free of undisclosed conflicts, regardless of whether the conflict is financial in nature.”
In response to this, MCO and Virtus LLC have planned a webinar to enlighten firms on the impact of SEC rule-making on compliance programs.
A focus on organisational culture is pivotal. The Starling Compendium 2023 noted the importance of shifting focus from rules to values that guide behaviour. Even Eva Hüpkes, Head of Regulatory and Supervisory Policies at the Financial Stability Board (FSB), highlighted the necessity of governance and ethics in finance.
MCO is also offering webinars on creating a thriving culture of compliance and tools for comprehensive regulatory governance.
Compliance technology, such as that offered by MyComplianceOffice, allows firms to proactively manage conflicts of interest. Utilising tech-enabled methods, firms can identify potential misconduct before it materialises.
MCO’s comprehensive system prioritises proactive prevention, centralised data sources, user-friendly interfaces, and standard processes. This approach embeds compliance into the daily operations of the firm, making adherence to conflict of interest policies consistent and repeatable.
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