Increased focus on personal liability places more emphasis on senior individuals’ ability to manage and mitigate their own regulatory risk, leaving compliance officers feeling particularly vulnerable
Report shares industry best practices, practical steps to best manage personal regulatory risk
Compliance officers are feeling particularly vulnerable according to a study from Thomson Reuters which finds the near-universal view that personal liability in financial services is increasing.
The Thomson Reuters Personal Liability report finds regulators are increasingly targeting individuals rather than firms, and compliance officers foresee themselves as the focus of accountability rather than CEOs. The findings also highlighted an expectation that regulatory focus towards senior managers will be extended internationally.
Thomson Reuters surveyed more than 2,000 risk and compliance practitioners through Q3 2015, many of whom were asked their views at customer summits in New York, London and Sydney. Comments were also received from Africa, the Americas, Asia, Australasia, Europe and the Middle East. Respondents and participants represented banks, brokers, insurers and asset managers ranging in size from small to international conglomerates including the majority of global systemically important financial institutions (G-SIFIs).
“These findings fall in line with the trends we’ve witnessed for the past several years,” said co-author, Stacey English, head of Regulatory Intelligence, Thomson Reuters. “Our annual Cost of Compliance surveys continually show more compliance professionals are worried their personal liability will increase with each coming year, and this report further reinforces how rapidly the trend is moving.”
Key findings from the report include:
- Emphasis on personal liability increasing: The results of voting at the Thomson Reuters New York customer summit found 93 percent of practitioners expected the personal liability of compliance officers to increase in the next year. Meanwhile, 64 percent expect a significant increase.
- The focus on accountability in new regimes is exacerbated by lack of oversight from senior managers: Almost half (49 percent) of participants to the personal liability survey reported senior managers ‘do not really know what is going on in their business’.
- An expectation that the regulatory focus on holding senior managers accountable will be extended internationally: 64 percent of respondents to the personal liability survey expect that regulatory regimes introducing individual accountability will be replicated around the world.
- Wariness towards new regulation: The potential effectiveness of any new regulatory legislation on increasing senior manager accountability (such as the UK Senior Managers Regime (UK SMR)) is in question. Only 53 percent of respondents to the personal liability survey anticipate new legislation will change behavior for the better.
- Compliance officers are feeling particularly vulnerable: When asked which role now carries the most personal liability, 67 percent of practitioners at the New York summit and 59 percent of customers at the London summit responded with the compliance officer. In contrast, the chief executive came in second place with 22 percent of participants in New York, and 30 percent in London.
- Greater personal liability is expected to impact resources: Two-thirds (67 percent) of respondents to the personal liability survey reported that the focus on accountability will have an impact on the ability to recruit and retain skilled senior staff.
“The regulatory tide continues to rise and both firms and individuals need to be aware of the changes,” said Phil Cotter, managing director, Risk, Thomson Reuters. “The successful companies and individuals will be the ones who are proactive to the new regulations rather than reactive.”
“With this increasingly harsh spotlight focusing on senior individuals, there needs to be a greater awareness to the changes in regulatory expectations,” said co-author, Susannah Hammond, senior regulatory intelligence expert, Thomson Reuters. “That includes awareness of the external regulatory environment, understanding and learning lessons from regulatory announcements, maintaining communication with regulators and a culture of compliance and accountability is established from the top down.”