This year’s ASIC Summer School (18–20 February 2007) placed the compliance profession on the regulatory radar and on the front page of a number of Australian newspapers (see Risk Management issue 50, p1). In many regards we should be thankful for the increased profile of the profession. However, the reason for the coverage needs careful consideration.

In his presentation, Peter Hunt, executive chairman of Caliburn Partnership Pty Ltd said, in the context of insider trading: “Compliance officers have a unique role in a financial institution – supporting a Chinese wall defence, and making complex organisations, which are inherently ridden with conflict, more politically acceptable. Let’s put the compliance officer under a positive statutory duty to seek out suspicious behaviour and disclose it directly to ASIC – whether it be client, employee or organisational behaviour. And let’s back this by a positive statutory obligation on all employees of financial intermediaries to report suspicious circumstances to their compliance officer.”

It was also said that it should be mandatory for every financial services licensee to have a designated compliance officer. During subsequent discussion it was further suggested that every party with access to inside information during a corporate transaction (eg lawyers, accountants, etc) should similarly be required to have a designated compliance officer.

The proposition of a positive statutory obligation on all employees of financial intermediaries to report suspicious circumstances to their compliance officer may be worthy of consideration. However, the proposition that there be a positive statutory duty upon the compliance professional to seek out suspicious behaviour and disclose it directly to ASIC is not as supportable. The Australasian Compliance Institute (ACI) has previously raised the prospect of there being statutory recognition of compliance professionals and their role, especially in the financial services sector. The nature of that recognition is open to discussion. ACI has also recently made submissions for the extension of privilege protection to compliance related communication.

However, while ACI supports statutory recognition, it is doubtful that the suggestions made by Hunt would be effective.

In practice, the introduction of a positive statutory duty to seek out suspicious behaviour and disclose it directly to ASIC is more likely to hinder effective compliance rather than foster it. Compliance professionals cannot work alone. They rely upon relationships and trust to foster compliant behaviour. The introduction of an obligation making a compliance officer a de facto officer of ASIC would be significantly detrimental to necessary relationships and trust. It would effectively alienate the compliance officer and make their function even harder than it is at present.

The proposal would escalate the role of the compliance officer to an uncomfortable position within a financial services organisation.

If there is to be realistic consideration of the statutory recognition of the compliance officer, the debate and any recognition should be consistent with the principles of AS 3806. Any responsibility of a compliance professional should be to the board of directors. Directors are the party responsible for ensuring a financial services licensee satisfies its statutory obligations to report significant breaches to ASIC in accordance with the Corporations Act.

David Lawrence is the president of the Australasian Compliance Institute