Some economies aren’t just false, they are foolish. A US financial services firm that skimps on having a professional handle compliance could soon discover it has made a mistake. Added costs and the anger of clients and regulators are just the start. For some fintechs, boutiques and start-ups, treating compliance or anti-money laundering (AML) as an afterthought could threaten the business.
Compliance keeps a firm and its managers on the right side of it. That is not something to dismiss lightly: in 2019 the Securities on Exchange Commission (SEC) imposed $24m in penalties on businesses. But good compliance is not about stopping a firm doing things. A skilled compliance professional shows you how to do them safely.
Ghost Compliance Officers - What Are They and How Are They Harmful?
Firms can be tempted to fulfil their regulatory obligations on the cheap by appointing what in the U.S is called a ‘ghost’ compliance officer instead of a professional. A ‘ghost’ is someone only nominally in charge of compliance or with hands-on responsibility but not the necessary knowledge and experience.
The temptation is understandable. No one likes spending money unnecessarily, especially in uncertain times. But appointing a ghost can bring problems swiftly. On the commercial side, important counterparties will be deterred from doing business with you because your substandard compliance exposes them to risk. Others may exploit it. Resources could be wasted on projects that hit an inevitable regulatory barrier. Your risk of employee fraud rises.
SEC aims to prevent ‘ghosting’ and maintain fair, orderly, and efficient markets. Whoever seeks regulatory approval to be an CCO must be a ‘fit and proper’ person for the role.
The regulatory consequences of appointing a ghost are potentially extremely serious. A firm can legitimately outgrow ‘double hatting.’ But deliberately seeking SEC approval for someone clearly unqualified to oversee compliance or AML could suggest a firm and its leadership hold the regulatory system in contempt.
If the SEC concludes that your firm thinks compliance with the rules is unimportant, it will also conclude it has failed to meet the required standards. The firm’s permission to operate in the US may be at risk.
Lesser repercussions of appointing a ‘ghost’ or ‘double hatting’ compliance officer for too long go beyond an embarrassing SEC refusal to approve an appointment. The firm’s governance arrangements could be called into question, leading the SEC to scrutinise its operations.
On the other hand, going ahead with compliance recruitment as soon as your firm begins to need a dedicated specialist or to expand its team does not just avoid penalties and regulatory interventions. Good compliance professionals understand business too. They work with frontline teams, finding solutions and identifying opportunities. They protect your firm from external and internal bad actors, helping you to make money safely.
At Rutherford, we know the market and exceptional practitioners in it. We understand that firms’ needs vary. That is why we can source the right compliance specialists for your firm.
Jonathan Skerrett is a Director at Rutherford, the executive legal, financial crime, cyber and compliance recruitment specialists.
Contact us for a confidential search, send us an email at email@example.com or see our latest vacancies.
 Source: SEC.GOV: https://www.sec.gov/news/pressreleases