The evolution of compliance

Abstract

Purpose

To describe how the role of the compliance function and the compliance officer originated in the UK, how it has evolved over the past 20 years, how boundaries are defined for the compliance function's areas of responsibility, and how the compliance function is expected to change over the next few years.

Design/methodology/approach

Begins with a background on how the compliance function originated with securities laws in the 1930s in the USA and the Financial Services Bill in the UK in 1985, describes how compliance officers were first designated, describes how the Financial Services and Markets Act (FSMA) of 2000 began to require statutory as opposed to self regulation, discusses the increasing importance of Training & Competence (T&C) among compliance responsibilities along with the role of the human resources function in T&C, outlines the role of the compliance function in the prevention and detection of money laundering and fraud, details other areas of responsibility such as data protection and health and safety that may be found in some compliance departments, and discusses the Markets in Financial Instruments Directive (MiFID) requirement that the compliance function be separate from the internal audit and risk functions.

Findings

The compliance function is going through a process of radical change with widening responsibilities, having evolved from something of a back‐room technical role to become a strategic, forward‐facing management function that has the ear of the board and senior executive. Except for the lack of requirement to pass a professional examination, the compliance function has many of the attributes of a profession. Compliance is now a well remunerated occupation that attracts recruits from other professions such as law and accountancy as well as straight from university. One increasing problem is the growing cost of compliance, which is unlikely to lessen with the increasing impact of MiFID over the next few years.

Originality/value

Provides a view of how the compliance function has evolved and is expected to keep changing from the standpoint of an experienced consultant.

Citation

Taylor, C. (2005), "The evolution of compliance", Journal of Investment Compliance, Vol. 6 No. 4, pp. 54-58. https://doi.org/10.1108/15285810510681883