The Compliance Revolution. Jackman David

embedded in the mainstream. This book weaves these threads together and provides an opportunity to look into the distance once again.

      Places have been more yielding. Much of this text has been composed during wanderings in Easedale, which the poet Thomas de Quincy correctly called “paradise in miniature.” Inspiration has also come from Edinburgh, Singapore, Dublin, Sligo, and Shrewsbury.

      I am grateful for the support of Geoffrey Rowell, Howard Davies, Phillip Thorpe, Sue Proudfoot, Cameron Butland, British Standards (BSi), PayPlan Ltd., Patricia Lee, and many classes of students.

      Finally, I am indebted to Alexander for his incisive editing, and my wife, who is better qualified in these areas than most of us.

      About the Author

      David Jackman, MA, PGCE, FRSA, had an Exhibition to Oxford and double distinction from Cambridge, as well as experience in an executive-tier bank management scheme and in teaching, before entering regulation in 1990. He co-founded the Securities Institute (now the Chartered Institute for Securities and Investments) and developed an agenda of prevention, education, and ethics applied at IMRO and during the formation of the UK's Financial Services Authority (FSA).

      On Halloween 2002, David launched “An Ethical Framework for Financial Services” – the first ethical statement published by a financial regulator. The concepts in FSA Discussion Paper 18 now underpin approaches to regulation in many jurisdictions.

      Following a chief executive role for the Financial Services Skills Council, and then visiting professor for the London Financial Academy, The Ethical Space was formed to work on this broad agenda with boards and organisations from all sectors. David has non-executive directorships and lectures and commentates on the BBC and in the press and researches. He has a long association with the regulator-supported Singapore ICTA diplomas and master classes inKuala Lumpur.

      As primary author of the UK National Standards for Sustainable Development (BS8900) and Sustainable Communities (BS8904), David also leads the UK's contribution to groundbreaking international standards for sustainable communities and smart cities. He has founded a Community Interest Company, the 21st Century Charter, the World Open Forum, the Ethics Mark, and the Ethics Foundation.

      A portal is offered in support of this book: www.intotheclearing.com.

Part One

      Theory

      The landscape of regulation and compliance is changing fundamentally. New elements are emerging that bring new sets of priorities, approaches, and methodologies. Chapter 1 shows how compliance needs to move in a more strategic direction.

      To understand this change in direction, we need a map. A theoretical model is set out in Chapter 2 giving a coherent picture of the past and future development of regulation and compliance. This is our base map for understanding the past and future development of regulation and compliance. This framework also helps to explain why change happens, and what regulation and compliance should do to be properly prepared and fully engaged.

      The model is based on financial services but could be applied to any industry or sector. While we primarily use examples from the UK and Singapore, which are both leading the way in their respective spheres, similar patterns can be found around the world. Not all jurisdictions are travelling at the same rate, so the model can be used to classify them and predict their future path.

       Chapter 3 reminds us that the record of compliance over the last decade has been difficult. This is partly because the changes underway prior to the Global Financial Crisis (GFC) of 2008 were not properly embedded by the time they were severely tested. This demonstrates clearly those firms and compliance practitioners who fail to understand the Bigger Picture and embed change are running a significant individual and corporate risk.

Chapter 1

      New Compliance

      See the whole among the pieces.

– Cameron Butland and David Jackman, Twenty-First Century Charter (21CC; June 2, 2009)

      The Challenge

      Compliance is undergoing a revolution in underlying principles, practices, role, expectations, and value. But many involved in governance, risk, and compliance (GRC) do not recognise the importance of the changes underway or understand how best to react and lead. This book aims to explain the significance of the phase we are now entering in financial services and provides a guide for compliance practitioners to navigate the transition in a way that is applicable to any sector or jurisdiction.

      Compliance is growing rapidly across the world as regulatory requirements become more complex and international. The compliance function is now growing faster than many other roles but in many cases remains operational and mechanical; relative to its level of responsibility and potential impact, compliance is low status and poorly integrated into mainstream business activities. It is often considered an expensive add-on, marginalised, seen as a barrier to successful business, bedeviled by silo mentality and simplistic approaches.

      This has to change. Compliance must show itself to be high-value, pivotal, and strategic. To achieve this there needs to be a fundamental shift in:

      ● How compliance sees itself

      ● Intellectual capital

      ● Overall direction and narrative

      ● Tools and methodologies

      ● Competences and professionalism

      Yet the primary reason for this change is not self-preservation or self-enhancement, but because the aims and deliverables of compliance are so important to so many. The outcomes of compliance are critical to individual customers, families, businesses, and to the interests of the wider economy and society.

      Turning Point

      A turning point has been reached in financial services regulation. This text picks up the story of regulatory and compliance development at this crucial inflection. This is the moment at which compliance comes of age. It is no longer acceptable or credible to hide behind box ticking or “having appropriate systems and controls in place.” The differentiator is professional maturity. This is not possible without a focus on corporate and sector-wide maturity.

      The journey on which compliance – and regulation – is embarking runs uphill. The path is steep and at times indistinct and difficult. There is a need to develop many tools and resources to assist the climb. However, this book sets out a general direction of travel and equips the reader with as much of the basic equipment as is possible to make a safe and successful ascent.

      What is paramount is speed. The journey needs to be embarked upon soon and with urgency. What is undoubtedly true is that the range and complexity of the problems mounting are extraordinary and the need for solutions in an unequal and globalizing world is pressing. Compliance and regulation generally has a valuable role in making or facilitating and, on occasion, leading progress for both firms and the wider community, far beyond its popular image.

      Traditional Compliance

      Traditional compliance, as we shall refer to mechanical practices, is not covered here. There are many texts on introducing risk-based approaches or capital models. Other traditional elements of compliance include basic fitness and properness tests, authorization, client money rules, know your customer, market manipulation rules, transparency requirements, and financial promotions regulations and conduct of business rules. These are all important but they represent the foundation level of regulation and compliance and are not sufficient to constitute a sophisticated control environment or justify compliance as a full profession.

      Similarly, fighting financial crime and money laundering have a basic of traditional compliance but have a sufficiently different set of objectives and processes to mark them out as a separate sub-discipline. It is more difficult to apply the models and tools introduced in this book to this parallel stream.

      A