Rutherford’s Leadership Series is a series of interviews with key players within the compliance, financial crime, legal and cyber security sectors. These informal conversations will serve as an opportunity for professionals to get insights on the trending topics within their field.
The next instalment of our Leadership Series is all about conflicts of interest and how a compliance department can effectively manage these situations – and the characters involved. How can a Compliance Officer properly manage conflicts of interest, especially when it comes to Gifts & Hospitality? Our most recent chat with David Young, a Senior Risk, Compliance and Governance Specialist, sheds a light on how to approach those conflicts and manage overall expectations of fund managers.
David – would you say there is such a thing as being too close to the business?
Definitely. Being too close to the business means you start to fall into the habit of group think or just believe what you are doing is right. It is very much a function of compliance to pose a degree of challenge to the firm. You need to constantly ask “Have you done this?”, “Have you thought about that?” “Why are you doing X instead of Y?”.
And when you think about it, monitoring also poses as a degree of challenge. In the asset management world, for example, people get very het up about certain things like Gifts and Hospitality or Personal Account Dealing. Again, you can’t be too close to the business here: you must keep in mind that it’s all about managing conflicts of interest.
Because it all becomes a very personal thing.
Exactly. And quite often, the concept of managing conflict of interest gets swept aside when someone has been offered tickets to a concert. And the bigger the star of the concert, the more the concept of managing conflicts of interest gets pushed aside.
If that fund manager comes into your office very angry about this, how do you respond? Do you just say no and there is a respect that comes with that, or do you finesse it slightly and try to diffuse the situation?
Let’s go back to the example of hospitality, since it is always a hot topic and the FCA has turned the spotlight on this in the last year or two. Here, you will have to start with a statement of policy, which basically sets out in broad terms not so much a process, but what is acceptable and what is not.
It will also lay out the things that have to be authorized above certain thresholds and so on and so forth. You must keep in mind that those policies should be designed with a certain flexibility built into them, so that you don’t get into a corner of declining things that are obviously okay because there isn’t a conflict, or because the conflict is managed in some other way.
But what you do not want to do is crack under the pressure. If a fund manager is breathing fire down the neck of a member of staff who is trying to administer the Gifts and Hospitality policy, you can’t turn around and say “Oh okay then, you can go to the Kylie Minogue concert”. I think it ultimately comes down to a certain amount of steadiness under pressure. You must stand your ground.
I am guessing that instead of just saying no, you also need to explain why you are saying no – that even though that fund manager really wants to go to that concert, this is why they shouldn’t.
Yes – and you will find that nine times out of ten, reason prevails. Bottom line, you are dealing with people. Some will understand and get where you are coming from. Some will not care if there is a conflict of interest or not and will still push to go to that Kylie Minogue concert.
When the latter happens, this is where you need to be even tougher. You can basically tell them that not only is the answer no, but they are also giving you concern that there is an overall conduct issue. After all, you are either not seeing or refusing to see that there is a conflict of interest that needs to be managed.
Which obviously leads to a bigger worry.
It goes back to how the FCA philosophy, the regulatory philosophy has evolved. The concept of principles-based regulations is changing and growing: you have got to apply the principles because it has now evolved further into judgment-based.
At the end of the day, what is all really means is to question yourself all the time about what you are doing. Are you doing the right thing? Should you be doing this?
Jonathan Skerrett is a Director at Rutherford, the executive compliance, financial crime, legal and cyber security recruitment specialists.
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