Managing compliance risk after MiFID
| DOI | https://doi.org/10.1108/13581981311297821 |
| Published date | 15 February 2013 |
| Pages | 51-68 |
| Date | 15 February 2013 |
| Author | Paola Musile Tanzi,Giampaolo Gabbi,Daniele Previati,Paola Schwizer |
| Subject Matter | Accounting & finance |
Managing compliance risk
after MiFID
Paola Musile Tanzi
Business and Law Department, Perugia University, Perugia, Italy and
Banking and Insurance Department, SDA Bocconi School of Management,
Milan, Italy
Giampaolo Gabbi
Department of Business and Social Studies, Siena University, Siena, Italy and
Banking and Insurance Department, SDA Bocconi School of Management,
Milan, Italy
Daniele Previati
Business and Law Department, Roma Tre University, Rome, Italy and
Banking and Insurance Department, SDA Bocconi School of Management,
Milan, Italy, and
Paola Schwizer
Department of Economics, Parma University, Parma, Italy and
Banking and Insurance Department, SDA Bocconi School of Management,
Milan, Italy
Abstract
Purpose – The purpose of this paper is to focus on changes in the compliance function within major
European banks and other financial intermediaries and on the effects of Markets in Financial
Instruments Directive (MiFID) implementation.
Design/methodology/approach – The four areas of research seek to answer the following
questions: Is the positioning of the compliance function “at the top” of the organizational structure?
Are the roles attributed to the compliance function, their knowledge and their instruments consistent
with their responsibilities? Do the methodologies applied follow a qualitative and/or a quantitative
approach? Is the interaction between the compliance function inside and outside the structure
appropriate to the goals of compliance? In total, 31 top international groups based in Europe were
invited to take part in the research, 16 of them accepted.
Findings – The authors observed a resolute adjustment to the regulations in terms of macrostructure
and high levels of compliance function competences in investment services and business knowledge,
with a low variation. The encouraging news coming out of the results of the research is the
confirmation of the presence of a connection between the compliance function and both the system of
values and of incentives.
Originality/value – The paper’s international sample offers a unique opportunity to highlight the
critical areas of the compliance function within international groups, with growing operational
complexity in a framework of principle-based regulation.
Keywords Compliance,Regulation, Governance, Compliancerisk,
Compliance function.Internal governance, MiFID
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JEL classification –G2
Managing
compliance risk
after MiFID
51
Journal of Financial Regulation and
Compliance
Vol. 21 No. 1, 2013
pp. 51-68
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981311297821
1. Introduction
The aims and characteris tics of the compliance fun ction in banks, financial
intermediaries and insurance companies are the subject of various normat ive
suggestions: from consultation papers, prepared by the Basel Committee on Banking
Supervision to the Markets in Financial Instruments (MiFID) Directive with its related
enforceable regulations. The compliance risk or worse, the non-compliance risk, “is
defined as the risk of legal or regulatory sanctions, material financial loss, or loss of
reputation” (Basel Committee, 2005) as a result of the failure to comply with laws,
regulations, rules, related self-regulatory organization standards and codes of conduct.
The article focuses on changes in the compliance function within major European
banks and other financial intermediaries and on the effects of MiFID implementation:
MiFID requires investment firms to implement a series of systems and controls (appropriate to
the nature, scale and complexity of their business) aimed at securing a robust governance
framework, with a clear organizational structure and lines of responsibility, and effective risk
management and compliance processes. This includes policies and proce dures to ensure
regulatory compliance and the establishment of a compliance function (ESMA, 201 1).
Our research:
.focuses on multinational groups based in Europe and operating in investment
services, such as banks, as set management companie s and investment
companies; and
.highlights the critical areas in terms of compliance after MiFID implementation
within international g roups, with growing operat ional complexity in a
framework of principle-based regulation.
The four areas of research seek to answer the following questions:
RQ1. Is the positioning of the compliance function “at the top” of the organizational
structure, as suggested by the Basel Committee?
RQ2. Are the roles attributed to the compliance function, their knowledge and their
instruments consistent with their responsibilities?
RQ3. Do the methodologies ap plied in investment servic es for measuring
and mitigating compliance risk follow a qualitative and/or a quantitative
approach?
RQ4. Is the interaction between the compliance function inside and outside the
structure appropriate to the goals of compliance?
31 top international groups based in Europe were invited to take part in the research.
16 of them accepted. The research was carried out using a structured questionnaire
and the qualitative analysis of public reports. Due to the sample size, this analysis can
only be considered indicative, but “knowing what is actually happening” is
essentially to avoid subjectivity and support action, providing ideas for organizing
systems, designing paradigms and thus facilitating efficient, effective and consistent
approaches to self-regulation and to implementing external regulations.
JFRC
21,1
52
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