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13 August 2015
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Following on from the popularity of our previous post ‘Is this a Scam?‘, a number of you bravely shared your stories of falling foul. Rightly it raises the question;
‘Who can I really trust?’.
Fair question to ask in a sector that is riddled with bad history!
So I asked the question to the person best qualified to answer in CSS Investments our Head of Compliance, Thomas Bourke.
His answer was simply;
Make sure before you invest any money in any investment vehicle, you do your own due diligence and ensure they are fully regulated by the FCA and have a Compliance Professional on their staff.
Hoping for a slightly longer answer for my post… I asked him a few more questions, to shed a bit more light on what that actually means to you as an investor.
AK: Ok, so in a nutshell, what is the FCA?
TB: The Financial Conduct Authority, to flesh out its acronym, is the organisation tasked in the UK to “police” the financial services industry. It evolved from the Financial Services Authority (FSA), and prior to that we had IMRO and SFA – and that’s as far back as I go.
The FCA is tasked with protecting consumers, financial markets and promoting competition within financial services. It does this by authorising firms, supervising them and then carrying out enforcement against firms who don’t follow the rules.
AK: What is Compliance within a regulated company?
TB: All regulated firms are required to have someone within the firm who is responsible for Compliance and someone – often the same person, responsible for Money Laundering – the prevention rather than the activity! These persons, along with the firm’s directors and senior managers, and to be honest – all staff, are responsible for ensuring that the firm as a whole and themselves individually, act in accordance with the rules and guidance lay down by the regulator.
AK: Are you independent from CSS Investments?
TB: The Compliance Department cannot be considered truly independent – that said within the industry we talk about the three lines of defence. The first line being your broker, they are responsible for ensuring they adhere to the rules and company procedures. The second line is Compliance which checks to see that the first line is following the rules and procedures. Finally the third line is our external auditors who are truly independent and they check the first 2 lines in their annual and interim audits. So although we are not independent the Compliance Department does perform a review and oversight function as opposed to the front office dealing function.
AK: What makes a company compliant?
TB: In simple terms I feel it is the company’s culture. It’s whether the tone from the top to the very bottom is about doing the “right thing” for the client. Of course it is about following the rules and regulations, but clearly not all eventualities can be covered by these rules therefore it is reliant on how the firm and individuals within that firm act ethically and morally.
We have all seen the massive fines that some of the bigger banks have had to pay out to the regulators for failures in their Compliance structures. As a result we are seeing a seismic change in their culture within firms as they reassess how they act and behave towards clients.
AK: What does a Compliance Officer demand from the staff?
TB: Simply put it is to treat customers fairly, or in an industry with a large number of acronyms, ‘TCF’. We have in place a large number of policies and procedures which are aimed to deliver outcomes to clients in terms of their expectations. Of course a broker can’t always deliver great outcomes for their clients, but as a minimum, clients ought to be aware of the risks they face and the potential downside as well as upside in any investment strategy.
AK: What challenges do you face in your role?
TB: There are MANY challenges in terms of overseeing the monitoring, interactions with the regulator, and dealing with new regulatory requirements. But I suppose one of the biggest challenges is concerned with issues pertaining to anti-Money Laundering and countering terrorist financing. It is not that our firm is attractive to such criminals, but rather the burdens it places on our clients to prove that they are not!
I am aware of the seemingly intrusive nature of some of the questions we ask of our clients, or the efforts we require in asking them to provide evidence of their identity. But this is as much to protect the wider community in which we live in, making it harder for those with a criminal intent to benefit from our financial system. I am sure you will agree that the small burdens we place on clients in this regard are a small inconvenience in respect to the larger picture.
AK: How does Compliance protect the client?
TB: That is an interesting question. In the main day-to-day business operations, Compliance has very little direct contact with a client. The activities undertaken by a Compliance department are to protect both the client and firm from regulatory failings. We review the documentation and communication the firm has with its clients through its Account Executives, the Brokers and our Trade Support function, and it is through this process that it ensures that the firm lives up to its regulatory responsibilities to act in the client’s best interest.
The only time a client will hear from me is if they raise a complaint. Even then we encourage our brokers to firstly try and put things right directly with the client. But if they can’t, then I will review the complaint via the client’s file and interactions a client has had with the firm. From this I will determine if I feel the client has a justifiable grievance and what, if any, compensation should be paid. And of course as a regulated firm if you are not satisfied with my response you can refer your complaint to the truly independent financial ombudsman service, or to use another acronym, ‘FOS’.
As discussed above we also protect clients in the wider sense by hindering the use of the financial sector by those with a criminal intent. Finally we protect our clients by ensuring that our advisers are fully qualified and competent and the products and services that are offered to clients are appropriate to their circumstances.
AK: How did you get into Compliance?
TB: I have worked within the financial services sector for most of my working life. I started out as an Investment Accountant and broadened my remit to cover Compliance. My interest in Compliance led me to undertake both the Chartered Institute of Securities and Investment Diploma focusing on Compliance as well as an International Compliance Association qualification in Anti-Money Laundering.
AK: Thank you speaking with me Thomas. There is lots here that I was not aware of, so I hope our readers now have a better understanding of the importance of the FCA and Compliance in protecting them from unethical practices.
So there we have an insight into Thomas’ world and what we have to do to keep the Compliance Team happy. I hope this helps you in any future decisions about where to invest your hard-earned money.
If we help just one single person to think twice and avoid a bad situation, then this post will be the most valuable I have ever published.
I know that this may not have answered all of your questions, but perhaps it has piqued your interest to ask us more – please feel free in the comments below!
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