With less than a year to go until the application of MiFID II, it is becoming increasingly clear that cultural change is being pursued by the financial regulators as a pressure mechanism to achieve systemic compliance.
A characteristic example is that of W H Ireland Limited who, in February 2016, was fined by the FCA for failing to take reasonable care to organise, maintain and manage effective systems and controls to protect against the risk of market abuse. Poor governance including a lack of clearly allocated responsibilities and missing a formal way of identifying and recording what training had been given and to whom, were a couple of the key points highlighted in the notice.
This increased scrutiny at both corporate and individual level becomes harder and harder to address and fines are becoming much more difficult to avoid if the firm relies solely on post-trade investigative and control mechanisms. That is why the responsibility of the individual is accentuated in the latest regulatory regimes; so that emphasis starts to be placed on preventive mechanisms.
Changing the firm’s culture in a way that is aligned with the mandates can radically reduce the potential of misconduct and market abuse.
So, what can financial institutions and the management bodies do?
- Ensure that everyone is aware of the different regulations and their role; how their area of responsibility relates to and is affected by these regulations. The creation of a cross departmental team, including legal, compliance, IT, conduct risk, internal communications, sales and trading to monitor and discuss issues, would help ensure faster dissemination, company-wide visibility and improved adherence to corporate and regulatory policy.
- Run regular training/update sessions. These can be organised according to employees’ status (new hires versus existing personnel), area and level of responsibility etc. This will help built a better, common understanding of regulatory developments, the firm’s strategy, ensure that their departments and themselves are accordingly aligned, and get answers to any questions they may have.
- Use technology not only for evidencing and reporting purposes, but also as a mechanism to help uncover and understand areas of risk, in order to prevent issues from escalating and help change behaviours that may cause ambiguity. In most cases, financial firms already have in place one or more of such technologies (call recording, mobile recording, interaction analytics, retrieval and replay, business intelligence etc), so it is more the matter of how they proliferate on what these technologies have to offer.