Compliance Relies Too Much on IT
Byline: Nick Clark
Financial groups are turning to specialised compliance software to protect themselves from the type of corporate scandal that engulfed Enron. However, they may be giving too much weight to systems that do not yet guarantee full regulatory and legal compliance, a corporate governance specialist claims.The systems have become the new buzzword in corporate self-defence but they are insufficiently advanced or sophisticated to turn a non-compliant company into a compliant one.
Lars Davies, senior visiting fellow at University of London's Institute of Computer and Communications Law and a corporate compliance specialist, said: "Compliance boils down to one requirement: evidential weight. The stronger that is, the stronger the position the company is in.
"Compliance systems are fine but there is no one programme a company can buy, plug in and become compliant. The integrated software just doesn't exist," he said.
The increase in regulation in the past few years, which is largely to protect clients and financial groups' counterparties, has brought about the change in emphasis. In the US, the Securities and Exchange Commission has implemented reforms to remove market abuse and conflicts of interest between organisations and their clients, while the UK's Financial Services and Markets Act, which merged several regulators into the all-powerful Financial Services Authority (FSA), introduced a new regime to broaden compliance requirements.
These bodies have imposed hard-hitting fines. Davies, who is also chief executive of Kalypton, a compliance and data management firm, said: "Before, when the fines were minimal, companies would factor in the cost of paying rather than spending money on compliance. When the regulators started implementing aggressive enforcement action, things began to change.
Especially when they target individuals. That is effective.
"A chief executive should know what is going on in his company, otherwise he should not be in business. It's not just monetary perks that go along with senior management, there's a lot of responsibility as well. If you don't want to read the small print, you shouldn't be there. …