Compliance managers are by default in control of your brokerage

Back in the 1980s, when the non-bank financial markets began to become the subject of regulation, compliance assessments by officials and internal due diligence among financial services companies when onboarding clients was conducted with a piece of paper and a brief case.

The independent financial advisers that took to the streets in their company cars looked rather similar to sales representatives of material products, visited the homes of their clients to sell either pensions or endowment policies, with neat brochures, physical application forms and compliance documents in box files.

Those days are long behind us, however for regulatory authorities to go from the beige cardigan to the ultra-high technology reporting systems that now have to not only keep pace with the cutting edge systems which are now in the hands of retail traders and investors as well as the totally borderless nature of the whole FX and CFD industry, those in regulatory positions need to be as computer science savvy as the trading platform developers themselves.

Gone are the country-specific regulatory remits which do not cover anything outside their own borders, and the world has become a small place, punctuated by massive corporate cultural and client behavioral differences that regulators struggle to place under one holistic set of rulings.

As a result, compliance managers are now in very high demand, as they need to understand the full topography of trading systems, how execution is conducted and where trades are being reported, as well as the traditional aspect of ensuring client interests, therefore, back as long ago as 2016, London’s compliance professionals were commanding day rates of £1200 on average, on a consultancy basis, and remain in very high demand today.

Three years ago, a Robert Walters report, called “The Salary Survey” showed that day rates for consultancy and contract positions in certain senior compliance roles would rest at £1,200 per day, and middle-management or internal compliance roles would to £700 per day.

This is not surprising, especially when considering the silent fear that exists within many regulated companies with global offices that they are completely reliant on their ‘responsible officers’ – a compliance sector term for employees that are responsible for regulatory adherence and oversight within a company and hold the license on behalf of a company.

In Australia, which has over the past few years become one of the world’s most highly respected regions for FX and CFD companies, largely due to its very high quality commercial leadership within our industry, its close trade ties to the Asia Pacific region and the tenacity and technological advancement of the Australian Securities and Investments Commission (ASIC), a considerable reliance on responsible officers has arisen.

Indeed, this reliance has culminated in many firms becoming very much at the mercy of their responsible officers, particularly international electronic trading companies with offices in other parts of the world, as well as an ASIC licensed office in Australia.

Changes in recent years from Australia’s highly respected financial markets regulator around assessment of responsible managers within licensees is creating all sorts of confusion for licensees, says a consulting firm.

The Fold Legal solicitor Jaime Lumsden Kelly commented this week that, in the past, ASIC did not routinely assess whether a responsible manager within an advice licensee met the competence requirements of the law, and that licensees assessed and maintained their own organisational competence.

However, according to Ms Kelly, this has changed in recent years. “While an RM is still legally appointed from the date the licensee determines, whether they remain on the licence is increasingly subject to ASIC’s review and opinion,” she said.

“Before a licensee can be sure that a responsible manager will remain on their licence long-term, that person will be assessed by ASIC. They review a detailed history of that person’s experience to determine if they are competent to oversee the provision of financial services or credit activities.

“This means that ASIC is effectively reviewing whether licensees are complying with their organisational competence obligations in light of the experience of its RMs.” Ms Kelly said ASIC’s new process has created uncertainty and both licensees and RMs are hesitant to fully commit to a role until ASIC has rubber-stamped the
arrangement.

Further, licensees are increasingly reluctant to employ responsible managers, because they aren’t sure if they will have ongoing work for them and, similarly, potential responsible managers are reluctant to accept an employment offer from a licensee if they can’t be sure of job security.

“The problem is exacerbated because it can take ASIC four to 12 months to process changes to responsible managers. These delays make it difficult for licensees and potential RMs to maintain a ‘holding pattern’ while ASIC completes its review. It also raises several questions,” Ms Kelly said.

“When should a licensee secure a responsible manager? What if the responsible manager gets a better offer? What happens to their licence if they lose an RM as they wait? Do they need to find a new RM and start the process all over again? What if that person can’t easily be replaced?”

This is a byproduct of the operational validity of brokerages being dependent on having a responsible manager onsite as one of the stipulations of maintaining an ASIC license.

Whilst it is a very good thing that ASIC requires a local responsible officer to be actually liable for his employer’s conduct and to be the subject of ASIC’s electronic surveillance and reporting, it does mean that by default, many of them now realize that they have significant control over brokerages, such a key component is their role.

Indeed, FinanceFeeds has met ASIC license holding responsible officers in the past who have openly admitted that they do little work and are in a very complacent position of their employer actually being at their mercy, which is never a good position to be in as it hampers scalability.

FiinanceFeeds is aware that Australian clients can often be viewed as high maintenance considering that the protections in place as well as the level of investor knowledge in Australia being high, thus we asked a compliance manager with over 25 years worth of expertise in Australia if Australian retail customers still being targeted by local brokers or are the brokers focusing on international markets.

“It will get worse as ASIC are attempting to bring n mandatory trade analyzing, with every FX broker soon to pay $1 per trade to send to a third party firm who will record and monitor each and every trade in Australia. Its designed to stop money laundering. It will kill the industry except for the very big players. These big players are rumored to have convinced ASIC they can regulate themselves, which seems ridiculous and grossly unfair” he said.

Australia’s retail FX industry deserves its very high quality reputation, however let’s hope that its brokerage businesses, especially the small to medium sized participants, do not see this de facto control by employees in positions of apparent power combined with this view that large firms will be the only viable entities, and that they stay in Australia instead of being tempted offshore.