ESMA: Compliance Function Guidelines

A productive time for ESMA: in addition to a consultation paper on suitability (see previous article), ESMA has also issued a consultation paper on guidelines relating to MiFID compliance function requirements.

It is ESMA’s belief that the financial crisis has highlighted the need for more clarification about the role of compliance. It also believes that compliance risk often takes second place to other risk areas within an investment firm. The purpose of the guidelines is to reinforce the importance of the compliance function and to “enhance clarity and foster convergence in the implementation of the MiFID organisational requirements relating to certain aspects of the compliance function”.

Those firms that are familiar with e.g. SYSC 6.1 & SYSC 4.3 will probably find that the impact of the (currently draft) guidelines will be minimal but in any event firms may wish to review their current practices against the proposed guidelines (which can be found from page 22 onwards). Although the paper references MiFID requirements it is worth noting that the major elements of SYSC 6.1 & SYSC 4.3 are also directed at other firms, albeit as guidance rather than rules e.g. see SYSC 6.1.2A.

The guidelines include the need to: take a risk based approach; establish and maintain a suitable monitoring programme; and to send written compliance reports (page 8 of the paper suggests the matters which should be addressed in the written reports) to senior management. Other areas which are included – and which we sometimes find that some firms overlook – are the need to include the compliance function in the development of relevant policies and procedures and when there are organisational changes.

As mentioned in the previous article, links to the ESMA website do not appear to open on some web platforms. If you cannot access the document using the link please copy and paste the following address into your web browser: http://www.esma.europa.eu/system/files/2011_446.pdf).

The consultation period ends 24 February and ESMA expects to publish a final report, and final guidance, in Q2 2012.

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