Designing Compliance Processes That Work

Education First

An essential element of designing compliance processes is understanding “compliance.” As strange as it may sound, this first critical step is most often omitted, particularly for smaller firms that don’t have the resources to hire a compliance officer. It is advisable to treat the process of learning about compliance with the same approach as you treat any other professional designation or educational opportunity. Set goals, do the reading, ask questions, and get to know about RIA compliance in general. Without either going through the educational process or hiring experienced compliance professionals to guide the way, it is nearly impossible to design effective compliance processes.

Organization is Key

“Compliance is an ongoing process, not a destination.”

Staying organized is key to your success as a compliance officer. It will make your life, and that of the examiner, much easier if you can present the necessary documentation appropriately. Take a moment and imagine trying to gather documentation and records for the last few years at the last minute, with the pressure of a regulatory exam looming over you. Hopefully, imagining this nightmare scenario motivates you to stay organized. Compliance is an ongoing process, not a destination. Identify outdated or missing records before it all starts to snowball out of control. Better to start now than to wait until it’s time to prepare for a regulatory exam!

Leveraging Technology

A great place to start is to utilize compliance task management software or another method for maintaining an organized compliance to-do list. Many firms go this route, and it works well, but it’s important to remember that technology is only as good as its user. Suppose your firm’s custom processes don’t accompany the particular task in the software. In that case, the task management system or checklist is more likely to lead to confusion than increased efficiency.

While working through compliance tasks, common questions are:

“Does this task apply to me? Do I have to do this? Is the frequency for this task to be completed relevant for my firm?”

Instead of wasting time and figuring out what you need to do, maintain specific processes for your compliance tasks based on the research you have conducted during the educational process. Process maintenance will improve your productivity and create a higher level of continuity for your compliance program.

What’s the “why,” “how,” and “when” of the task?

We like checklists because we can check the box and move on. However, it is imperative to approach compliance tasks by identifying the purpose of the assignment. With compliance, it’s just as important to explain why you did something as it is to show what you did. The compliance officer needs to explain the reasoning behind a task so that it is clear that there are reasonably designed processes. Revisiting the above scenario of a regulatory exam, if an examiner senses that the compliance officer does not understand the true intent behind a given regulation, they might decide the compliance oversight is insufficient regardless of the documentation provided. By putting detailed processes in place, compliance professionals can document the firm’s thought process, which will prove highly beneficial during an exam. Referencing a procedure will make it much easier to communicate clearly and concisely with the regulators instead of coming up with explanations on the fly.

Once we know the “why,” we can then determine the “how.” Here, it’s helpful to imagine you are passing this compliance task off to someone else. Failure to document processes is why so many small firm owners have difficulty delegating compliance tasks. Without thorough documentation of “how” tasks are to be completed, the firm lacks the foundation to incorporate others into the process.

Then we arrive at the question of “when” – when will the compliance task be done? Usually, compliance task management software has a compliance calendar or schedule that is preset. Calendars are helpful because they help firms stay accountable by establishing the regularity of review and documentation. However, just as we recommend customizing your firm’s processes, you should also customize the timing of tasks to fit your firm’s needs. For example, if there is a task that is supposed to be done monthly according to the compliance calendar, but upon review, you feel it only needs to be done quarterly, makes that adjustment. Like other elements of this process, the “when” is determined mainly by the compliance professional’s understanding (education) of what the task is designed to accomplish.

Begin with the End in Mind

We can apply this classic concept to just about everything, including compliance. An excellent analogy for this portion of the process is to imagine the broad steps for building a home. Generally, a foundation needs to be laid piece by piece, and then everything is built on top of this. Without a solid foundation, a home is destined for eventual disaster. We know that at some point, all firms will be asked about the thought process behind their compliance decisions. Designing effective compliance processes is the best way to prepare for that conversation.

These materials have not been reviewed or approved by any regulatory agency, and represent solely the interpretative opinions of Synergy Compliance Education (“Synergy”). To the fullest extent permissible pursuant to applicable laws, Synergy disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. In no event shall Synergy have any liability for damages, losses, and causes of action for accessing these materials.