Cost‐benefit analysis and compliance culture
| Pages | 16-22 |
| DOI | https://doi.org/10.1108/eb024900 |
| Published date | 01 January 1997 |
| Date | 01 January 1997 |
| Author | Isaac Alfon |
| Subject Matter | Accounting & finance |
Journal of Financial Regulation and Compliance Volume 5 Number 1
Cost-benefit analysis and compliance culture
Isaac Alton
Received (in revised form): 28th August, 1996
The Securities and Investments Board, Gavrelle House, 2-14 Bunhill Row, London EC1Y 8RA;
tel:
0171 382 0858; fax: 0171 382 0857.
Isaac Alton read economics and statistics and
took a postgraduate course in public econom-
ics. He then worked in utilities regulation for a
leading economics consultancy. He joined the
Cost-Benefit Analysis Department of the Securi-
ties and Investments Board (SIB) in late 1994
where he has given advice on cost-benefit
mat-
ters on a variety of issues. The views
expressed herein are the author's and should
not be seen as reflecting those of the SIB.
ABSTRACT
The increasing use of cost-benefit analysis
(CBA) in financial regulation is bringing a
sharper
focus on the benefits
conferred
by regu-
lation. This paper
addresses
the impact of that
sharper focus on the
compliance
culture of
regu-
lated firms. Why focus on the benefits of
regu-
lation? What does CBA have to offer to the
compliance culture of authorised firms? How
does the introduction of CBA fit in with other
developments in the regulatory arena? This
paper offers some tentative answers to these
questions.
INTRODUCTION
The Securities and Investments Board (SIB)
established, in early 1995, a cost-benefit analy-
sis (CBA) department following the recom-
mendations of the review conducted by its
Chairman, Sir Andrew Large. A major aim of
the CBA department is to act as internal advi-
sors to those developing policy within the SIB
by providing analysis of the impact (costs and
benefits) of (de)regulatory proposals.
CBA is, therefore, regarded as an aid to
policy formulation within the SIB. The pur-
pose of this paper is to discuss CBA from an
alternative perspective, that of regulated firms.
Firms' perspectives on regulation are reflected
in their compliance culture. Thus, the paper
first discusses different views of firms' compli-
ance cultures and then it presents Ruimscho-
tel's alternative framework for considering
compliance cultures (which is better suited to
the purposes of this paper).1 The next section
of the paper then discusses the practice of
CBA by regulators and highlights its long-
term implications for compliance culture. The
paper shows that the practice of CBA can con-
tribute to a better understanding of the ratio-
nale of regulation and can promote an
improved compliance culture within regulated
firms. The last section of the paper applies the
compliance culture framework to explore
other developments and policy
discussions.2
TYPE OF COMPLIANCE CULTURE
Firms authorised in the UK under the Finan-
cial Services Act (FSA) have to ensure that
their behaviour accords with the relevant rules
promulgated by their regulator. It is now
accepted that firms' compliance culture is cru-
cial for attaining a satisfactory level of compli-
ance and, hence, of investor protection. The
large number of papers addressing firms' com-
pliance culture in journals such as Journal of
Financial Regulation and Compliance supports
this claim. This section analyses different views
of compliance culture to set the scene for the
subsequent discussion of the role of CBA.
There are two distinguishable strands in the
literature on compliance culture. The first
strand emphasises the impact of the organisa-
tional structure of the compliance function on
the firm's compliance culture.3 It is argued
Journal of Financial Regulation
and Compliance, Vol. 5. No. 1,
1997,
pp.
16-22
© Henry Stewart Publications,
1358-1988
Page 16
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