Accountability of senior compliance management for compliance failures in a credit institution
| DOI | https://doi.org/10.1108/JFC-11-2016-0074 |
| Date | 02 January 2018 |
| Published date | 02 January 2018 |
| Pages | 131-139 |
| Author | Michael H. Meissner |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Accountability of senior
compliance management
for compliance failures in a
credit institution
Michael H. Meissner
Faculty of Law, The Chinese University of Hong Kong, Shatin, Hong Kong
Abstract
Purpose –In most industries, legal entities of a certain size and complexity must have a compliance
function. Such requirement is either set forth by regulatory law or the governance rules of the relevant
organisation. In the highly regulated credit industry, the role and responsibilities of the compliance
function are more precisely defined than in other industries. This paper aims to analyse the personal
accountability of senior compliance officers in a bank’s compliance function when there is a failure of
proper compliance.
Design/methodology/approach –This paper is based on a keynote addressed at Jesus College,
University of Cambridge, 7 September 2016. The author approaches the issue of senior compliance
management by analysing development of international financial regulation with respect to legal
requirements for compliance function. Subsequently, the author determines what constitutes senior
compliancemanagement and applies the various legal regimes to situationsof compliance failures.
Findings –While the accountability of the chief compliance officer and deputy for compliance failures is not
set forth in regulatory law, courts and scholars have acknowledged such personal responsibility exists resorting
to principles of civil law (contracts or torts), criminal law or employment law. Approaches and questions for this
legal analysis are similar in a civil law as well as in common law jurisdiction. The most relevant breach of
contract of the chief compliance officer will be an omission to act (forbearance), i.e. the failure to properly organize
the compliance function and/or to immediately report a compliance risk to the board.
Research limitations/implications –Scholarly work in the law of compliance is still somewhat
limited, thus the research also includes practitioners’observations. The accountability of senior compliance
management for compliance failuresrepresents a growing trend in corporate governance to seek individual
accountability for corporate misconduct; see, for example, US Department of Justice (DOJ) in its so-called
Yates memorandumon “individual accountability for corporatewrongdoing”.
Practical implications –In incidents of non-compliance,banks and their compliance officers should be
able to exculpatethemselves if they can demonstrateproper organization of the compliance function.
Originality/value –The originality of this general review is to focus the analysis of accountability of
senior compliance management on the credit industryand to consider latest developments in international
financial regulation,such as the supervisory review and evaluation process (SREP) by the European Central
Bank (ECB) in the single supervisorymechanism (SSM) or the corporate governance principles for banks by
the Basel Committeeon Banking Supervision (BCBS).
Keywords Accountability of senior compliance management,
Compliance function in credit industry, International financial regulation
Paper type General review
Introduction
When compliance evolved as new risk management function in the early 2000s, in major
Western countries, legislation and judiciary identified the leadership of an organization as
Senior
compliance
management
131
Journalof Financial Crime
Vol.25 No. 1, 2018
pp. 131-139
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-11-2016-0074
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