Every registered investment adviser (RIA) and their employees have a fiduciary duty to put their clients’ interests ahead of their own. The Securities and Exchange Commission (SEC) often emphasizes that the key to a successful compliance program is having a strong culture of compliance embedded throughout the firm. This means that it is not sufficient to just have policies and procedures for all employees – everyone must also understand their compliance obligations and apply them on a daily basis.
What is a Culture of Compliance?
According to many industry experts, including Peter Driscoll, former director of SECs division of examinations, organizations that establish a compliance culture from the top down create an overall environment that fosters ongoing ethical behavior and decision-making. Simply put, it means instilling in every employee an obligation to do what’s right at all times. But how do you create a top-down compliance culture?
Tone from the Top
First and foremost is that strong and ongoing communications (and actions) regarding the importance of a successful compliance culture must come from the highest levels of a firm, including the CEO, C-suite, board and managing partners. Senior management buy-in on compliance is extremely important in creating a highly ethical culture. Here are some additional best practices firms can implement to demonstrate the tone from the top:
- Executive leadership and senior managers encourage employees and business partners to behave legally and ethically, and in accordance with compliance and policy requirements. They also showcase this culture by publicly practicing what they preach.
- Employees across the firm need to be comfortable coming forward with legal, compliance and ethics questions and concerns without fear of retaliation.
- Organizations should reward and promote people based, in part, on their adherence to ethical values.
- Firms should reward employees for reporting bad behavior or speaking up about errors or violations.
Sustaining a Strong Compliance Culture
Once the tone is set from the top, maintaining a strong culture of compliance requires consistent communication, governance and ongoing training on compliance policies, procedures and laws, including:
- Mandatory new employee compliance orientation and ongoing training on compliance policies, procedures and code of ethics.
- Training employees not to make isolated decisions on compliance matters.
- Implementing a professional compliance mentorship program.
- A strong governance structure. For example, compliance or ethics committee oversight of the compliance program.
- Ongoing communications about regulatory matters and enforcement actions that are of interest to employees.
- Including ethics as part of the firm’s mission statement.
A strong compliance culture promotes behavior that helps businesses grow and achieve organizational and regulatory goals. This culture will underpin all that the firm does, and it must be part of the firm’s ethos. When employees make decisions, large and small, and regardless of who’s in the room, they are guided by a culture that reinforces doing what’s right.
Even if you feel that your organization demonstrates a strong culture of compliance, it always helps to get a second opinion. ACC has extensive experience in advising clients on how to create or maintain a culture of compliance or an effective compliance program. We have more than 25 years of compliance experience supporting RIAs, so we have a thorough understanding of their business practices.
Are you seeking an outside review of your compliance culture? Contact us to learn more about how we can effectively and economically execute this review.
