Over the past 10 years, Swiss and international regulations have made the notion of Compliance a must in the financial marketplace.
But what does the term really mean?
This post provides a brief history and definition of Compliance.
From ethics to compliance
Before 2004, Compliance was mainly about fighting money laundering and terrorism. Rules concerning areas such as market abuse or investor protection were virtually non-existent; institutions were required to comply with the succinct rules that applied to them.
For the rest, they were expected to apply the ethical rules specific to their profession. (French banks used to manage their Compliance through their “Déontologie” department).
Regulatory package
From 2004 onwards, with the considerable increase in banking and financial regulations, the notion of Compliance really came into its own. The term Compliance, defined in 2004 by the Basel Committee (which issued the famous Basel II standards that same year) means “ensuring that a financial institution complies with all the regulations applicable to it”.
Compliance today
Compliance today is much broader than just compliance with anti-money laundering standards. There are 3 main types of standards:
- Regulations: for an independent asset manager, for example, these include the AMLA, the LSFin, the LEFin, the LIMF (142, 143), and all their ordinances. When independent asset managers become subject to FINMA, certain FINMA circulars will also apply to them.
- Self-regulation and industry standards: these may include standards issued by the Asset Management Association for fund managers, by the Swiss Bankers Association for banks and securities firms, or the code of ethics of the SRO or SO, as well as the rules of groups such as SAIFA. It is important to note that FINMA has made many self-regulatory standards “minimum standards”, making them mandatory.
- The third type of standard concerns the financial institution’s internal rules: directives, procedures or any standard issued by the Board of Directors are all rules that the institution must follow, on pain of receiving a recommendation or irregularity from the auditor.
Compliance, tomorrow
Compliance now encompasses virtually all the activities of a financial institution, including risk management, the quality of its management, and soon the sustainability of its services and products, with the establishment of ESG standards.
Surprisingly, one of the main risks for a financial institution has thus become the risk of unknowingly transgressing a standard, so complex has the regulatory system become.
What if the Compliance of the future consisted in streamlining and simplifying regulations? That’s the best we can hope for, as an excess of standards that are too complicated to manage risks losing sight of their primary objective: to protect investors and guarantee the stability and influence of the Swiss financial center.
