What is a 'Compliance Department'
The compliance department within a brokerage firm, bank or financial institution is designed to ensure compliance with all applicable laws, rules and regulations. Depending on the business of the financial institution, these duties may range from monitoring trading activity, preventing conflicts of interest and ensuring compliance with regulations at brokerage firms to preventing money laundering and potential tax evasion at large banks.
BREAKING DOWN 'Compliance Department'As a firm's internal police force, the compliance department is unlikely to be the most popular unit in a firm. However, a competent compliance department is of the utmost importance in maintaining a firm's integrity and reputation.
Compliance demands for most financial firms increased regulatory oversight significantly in the wake of the 2008 credit crisis. This has led to increased demand for experienced compliance staff.
Although compliance costs have spiraled higher in recent years, the costs of non-compliance - even if inadvertent - can be far greater for a financial institution. Non-compliance may lead to stiff monetary fines, legal and regulatory sanctions, and loss of reputation.
Compliance Department Members
The compliance department generally has a wide range of roles and responsibilities within a firm. Compliance, in one way or another, must also be upheld by almost every employee within the firm. Each office has a manager who is responsible for supervising the office. Larger offices may have a compliance officer, whose sole job is to help maintain the branch’s compliance with both industry and firm regulations. Both the manager and compliance officer are required to have a special license that enables them to act in a supervisory capacity. For example, in the brokerage industry, this is the general securities sales supervisory license. These are also known as the Series 9 and 10 licenses.
Employees of the firm are required to maintain compliance in day-to-day activity, especially those that have regular client contact. In order to help satisfy this, financial institutions have developed annual continuing education courses that cover the various compliance-based topics. Individuals who are licensed must also uphold the continuing education requirements for their licenses as well.
Compliance Department Duties
The job of the compliance department is to be proactive within the company and prevent possible non-compliant actions before consequences occur. Compliance has special software that may monitor all incoming and outgoing communications employees have with the public. Emails may be flagged if certain key words or complaints are evident. Written correspondence is usually checked to make sure the proper disclosures are present and the content is suitable. All written correspondence, mailed or faxed, is also photocopied and retained by the compliance department for future reference.
Compliance also has the duty to review transactions or activity in order to ensure there are no errors or evidence of wrongdoing. The banking industry, for example, has implemented several safe guards to automatically flag suspicious activity which could be caused by fraud or money laundering. These potential issues are forwarded to the compliance department for immediate review.