The evolution of compliance
Chris Taylor
Abstract
Purpose – To describe how the role of the compliance function and the compliance officer originated in
the UK, how it has evolved over the past 20 years, how boundaries are defined for the compliance
function’s areas of responsibility, and how the compliance function is expected to change over the next
few years.
Design/methodology/approach – Begins with a background on how the compliance function
originated with securities laws in the 1930s in the USA and the Financial Services Bill in the UK in 1985,
describes how compliance officers were first designated, describes how the Financial Services and
Markets Act (FSMA) of 2000 began to require statutory as opposed to self regulation, discusses the
increasing importance of Training & Competence (T&C) among compliance responsibilities along with
the role of the human resources function in T&C, outlines the role of the compliance function in the
prevention and detection of money laundering and fraud, details other areas of responsibility such as
data protection and health and safety that may be found in some compliance departments, and
discusses the Markets in Financial Instruments Directive (MiFID) requirement that the compliance
function be separate from the internal audit and risk functions.
Findings – The compliance function is going through a process of radical change with widening
responsibilities, having evolved from something of a back-room technical role to become a strategic,
forward-facing management function that has the ear of the board and senior executive. Except for the
lack of requirement to pass a professional examination, the compliance function has many of the
attributes of a profession. Compliance is now a well remunerated occupation that attracts recruits from
other professions such as law and accountancy as well as straight from university. One increasing
problem is the growing cost of compliance, which is unlikely to lessen with the increasing impact of
MiFID over the next few years.
Originality/value – Provides a view of how the compliance function has evolved and is expected to
keep changing from the standpoint of an experienced consultant.
Keywords Compliance costs, Securities, Legislation, Money laundering
Paper type General review
1. Early Beginnings
The term ‘‘compliance’’ appears to have originated in the United States referring to the need
to comply with the 1930s Securities laws that were enacted there. Within the United
Kingdom, the term compliance first appeared around 1985 when the Financial Services Bill
was proceeding through Parliament, to be enacted in 1986 and eventually coming into force
in 1988 as the Financial Services Act.
Financial Services firms began to realize that this new legislation would have a significant
impact upon their various operations. The more far-sighted senior management identified
executives to review this impending legislation in order to understand what it would mean for
their business.
Such executives were not always called compliance officers in the very early days as that
term had not gained widespread currency. Few, if any, staff had any practical experience of
PAGE 54
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JOURNAL OF INVESTMENT COMPLIANCE
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VOL. 6 NO. 4 2005, pp. 54-58, Q Emerald Group Publishing Limited, ISSN 1528-5812 DOI 10.1108/15285810510681883
Chris Taylor (Chris.Taylor@
cclcompliance.com) is a
Senior Consultant at The
CCL Partnership LLP,
London, UK.