Sun, Oct 7, 2018

Human Resources as the New Compliance Function

Individual accountability won’t transform organizational culture on its own, but firms could make greater use of a resource they already have.

In recent years, efforts to change the compliance culture in firms have been greatly impacted by the increased emphasis on individual accountability. Regulators such as the FCA have repeatedly – and rightly tried to encourage this change by stressing the importance and influence of the “tone from the top” in firms.1

However, without an organizational infrastructure to promote, coordinate and control efforts to change the culture, these efforts are likely to fail. 

One reason for this is that, in practice, the driving force behind individual accountability is the threat of sanctions on individuals for compliance failures for which they are held responsible. That threat is still relatively slight in  jurisdictions such as the UK,– notwithstanding of course the introduction of the SMCR. FCA fines in 2017 totaled £229.5 million, but those issued against individuals amounted to just £435,000. The regulator has in 2018, despite their strong stance on individual accountability and conduct, even shown reluctance to opt for harsher sanctions against individuals in at least one recent high-profile case against Barclay’s Chief Executive Officer following his attempts to identify an internal whistleblower.2 

Where the regulator’s bark is seen to be worse than its bite when it comes to individual sanctions, the power of individual accountability to transform the organization culture is ultimately diminished.

People power 

It is unrealistic to expect regulatory initiatives, such as the SMCR to change culture in isolation without broader support. In other areas, such as tackling sexual harassment, bullying or discrimination there is no lack of consequences for an individual’s failure to behave properly; nevertheless, it is still assumed the organization will be the one to take responsibility for ensuring the rules are followed. 

In both of these areas, it is the Human Resources department that takes a lead in both developing and enforcing policies and procedures, as well as handling complaints. Might it play a similar role in compliance?

There is a strong argument that it should. Of all the functions in the business – possibly including the leadership – Human Resources has arguably the greatest experience, expertise and role in determining the workplace culture. Monitoring and managing employees’ behaviour against the firm’s objectives, expectations and policies is its bread and butter. Human Resources usually has a hand on the key levers businesses have to influence staff behaviour, too: appraisal systems, feedback, goal setting, and of course bonuses and pay. Since compliance is ultimately about encouraging the right behaviours, this department could be a powerful force in steering organisational culture to where it needs to go. 

For that vision to be realized, however, at least two things need to happen. First, the connection and communication between the Compliance function and Human Resources will need to improve. A collaboration between the two could amalgamate Human Resources’ expertise in helping promote and influence employees’ behaviors and Compliance’s the in-depth understanding of the behaviors required into the perfect infrastructure to promote a better culture.

Second, Human Resources needs a higher profile within the organization as well as the power to drive change through to the end. The function needs to be elevated to a greater role in setting businesses strategy so that it can ensure the cultural changes required are reflected in priorities for hiring, appraisals, and pay.

Human Resources therefore has massive potential in driving through the changes firms need to see. By establishing a collaborative infrastructure that integrates the Human Resources and Compliance functions, firms could become much more efficient and effective in their compliance responsibilities. As ever, though, this directive also needs to be lead from the top. 



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