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One of the most important, albeit often overlooked, factors of success is building and maintaining a strong culture of compliance across the organization. The annual review is an important milestone to set the right tone and ingrain the right practices, allowing everyone across your firm to understand, manage, and reduce risks. Here’s how you can use your annual review to ensure you’re cultivating a culture of compliance across your business.
While a culture of compliance is not something that can be easily defined, it can be a powerful tool to nip abusive sales practices in the bud or avoid instances of whistleblowing. Getting things such as supervision over your remote employees can help to build that culture, despite there being no clear metric that can say, “you do or do not have a strong culture of compliance.” It’s something though, that examiners are trained to pick up on, and typically within the first few hours of an examination, they’ll get a good sense of where your organization falls on the scale. This can be a key factor in the type of examination you get; if the regulators determine that your organization does not take compliance seriously, human intuition is for them to probe deeper, expecting to find issues.
Why is the annual review important in building a culture of compliance?
One of the most important exercises organizations can undergo to ingrain a healthy compliance culture is the annual review. As a requirement under Rule 206(4)-7(b) of the Investment Advisers Act, every U.S. registered organization should already be doing this; but how the review is conducted can make all the difference.
It can be easy to check the boxes. You can use the same summary of your company that you have used for the past five years. It allows you to sign off that you have “reviewed” your compliance manual without making any meaningful changes.
You can even pick some easy and clear areas to test, calling it a day. While this approach can be appealing to quickly check one more thing off your ever growing to do list, it’s not one that’s beneficial in the long run.
How do I make the most of my annual and quarterly reviews?
Businesses that put time, energy, and thought into these reviews are those that reap the rewards. There are a few crucial steps you can take when conducting an annual review that can determine its success:
- Review any recent regulations that have passed, understand the changes, and adjust business processes accordingly.
- Meet with different members at your organization to truly understand how work is being done, to write and embed policies that genuinely reflect how your organization does business.
- Take high-risk areas of the business and complete in-depth testing to identify the root cause of issues, filling any gaps to make sure they don’t happen again.
What are the benefits of a successful annual review in the long-term?
This approach can feel intimidating and time-consuming, requiring the effort and synchronization of an entire organization. But it pays dividends in the long run. By being more in touch with your organization, compliance can be a proactive force that assists in making work easier, rather than being a roadblock. A colleague that understands compliance is present, pays attention, and cares, will reflect this in their work and make them more comfortable reaching out with concerns before the proverbial mole hill turns into a mountain. And most importantly, issues can be identified and addressed before a regulator does.
What if my compliance function identifies an issue?
Some may be concerned with identifying problems as they feel it can give a regulator the road map of where to dig in on. We have first-hand experience during exams where regulators have seen issues and have recognized the organization is in the process of addressing these, at times deciding not to write that client up. Alternatively, we have seen examiners catch relatively small mistakes, but because there is a lack of awareness in the organization of the issues, they decide to take firmer action over something that could have easily been resolved with an internal memo. So, it’s always best to be aware and tackle any issues identified, before they get blown out of proportion, increase in severity, or are identified by the regulator.
While you can’t control the type of exam, examiners and situations are unique, the constant thing that regulators are looking for, are organizations that take compliance seriously. No one expects an organization to be perfect, but there is an expectation to understand those flaws, and demonstrate an effort to actively improve them; with your annual review being a key piece in being able to do that.
How can Bovill Newgate help me use my annual reviews to build a culture of compliance?
We can make sure your compliance systems are robust by conducting annual reviews tailored to your business. Our team can draft new policies, assist with operational compliance, or provide your staff with bespoke training.
We also regularly conduct SEC mock examinations to help you prepare for the real thing.
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