Compliance meets human resources: Monitoring competence and integrity

Abstract

The financial crisis has created a new interest among regulators in the individual responsibilities of senior managers of financial institutions. In the UK, this has led to the creation of a new senior management regime for banks and insurance companies in which managers can face individual sanctions, including fines, if they have not taken reasonable steps to prevent regulatory breaches. This has led in turn to an interest in using human resources (HR) documentation and techniques to further compliance. It is unlikely, however, that firms will use HR documentation such as appraisals as the basis of compliance monitoring and sanctions against individuals. This is partly because of privacy rules and other legal safeguards for individuals, and partly because such monitoring can lead to a culture of fear and suspicion that encourages secretive behaviour. Instead, firms are more likely to support senior management responsibility through the more positive use of HR techniques, including: ●● creating clear lines of individual accountability; ●● testing these lines through the use of regulatory case studies and root cause analysis; ●● reinforcing these responsibilities through established appraisal processes; ●● promoting better culture through better incentives, enhanced corporate governance, and the use of more sophisticated approaches to analysing and understanding behaviour within organisations and ●● promoting a greater capacity for compliant and ethical behaviour through a recruitment policy that is more focused on diversity and social sensitivity within the workforce.