In recent years, there has been a debate within the financial industry regarding whether the Chief Compliance Officer (CCO) of FCA regulated firms should be a member of the Board of Directors or not. The Senior Managers and Certification Regime (SMCR) has made it mandatory for the CCO to be approved by the FCA as SMF16. This article critically discusses the matter and considers the key factors that should be taken into account when making this decision.
One of the primary responsibilities of the CCO is to ensure that the company complies with all the regulatory requirements and guidelines set out by the FCA. The CCO must have a thorough understanding of the regulations and must ensure that the firm is following all the necessary protocols to mitigate risks. It is essential that the CCO has independence from the profit of the company and does not get involved in optimizing profitability. However, the CCO must ensure that the company is running a viable business model that is compliant with regulatory requirements.
Having the CCO as a member of the Board of Directors can be advantageous in several ways. Firstly, it ensures that the CCO is fully integrated into the firm’s decision-making processes. The CCO can provide valuable input and guidance to the Board of Directors on compliance-related matters. Additionally, having the CCO on the Board of Directors ensures that the compliance function is given due importance, and the firm’s compliance culture is strengthened.
On the other hand, there are also potential disadvantages to having the CCO as a member of the Board of Directors. Firstly, there is a risk that the CCO may not have sufficient independence from the Board of Directors, and their decision-making may be influenced by the profit motive of the company. This could lead to a conflict of interest, where the CCO may prioritize the interests of the company over regulatory compliance. Secondly, the CCO’s role is primarily focused on compliance, and they may not have the necessary expertise to provide input on other aspects of the business.
To mitigate the potential disadvantages of having the CCO as a member of the Board of Directors, certain measures can be taken. For example, the CCO must have access to all Board minutes and committees and sub-committees minutes. This ensures that the CCO is fully informed of all the Board’s decisions and can identify any potential conflicts of interest. Additionally, the CCO should report directly to the CEO, who should be responsible for ensuring that the CCO has sufficient independence and resources to carry out their duties effectively.
In my opinion, while having the CCO as a member of the Board of Directors can provide several advantages, there are potential disadvantages that need to be considered. To strike a balance between compliance and independence, the CCO should not be a member of the Board of Directors but should be regularly invited to attend meetings and have full access to all necessary information.
In conclusion, the decision on whether the CCO should be a member of the Board of Directors ultimately depends on the firm’s specific circumstances. While having the CCO on the Board of Directors can provide several advantages, there are also potential disadvantages that need to be considered. It is essential to ensure that the CCO has sufficient independence and access to all necessary information to carry out their duties effectively. Ultimately, the priority should be to ensure that the firm is compliant with all regulatory requirements and that the compliance function is given due importance within the organization.