What seems like a fairly simple, straightforward
area is one of the areas that firms are most often deficient. Approximately 75%
of a deficiency items in a regulatory audit are a result of deficient
procedures. The fault lies with the failure to update the procedures for the
way the firm conducts business rather than the firm acting in a manner that
does not meet compliance standards.
Many compliance people approach written procedures
and their implementation in the wrong way. They try to make the firm change its
behavior and office procedures to match what the manual says it should be
doing. In addition, compliance manuals are often cluttered with sections that
do not apply to the firm or call for procedures that are excessive in their
application to the firm’s environment. A firm is deficient if it does not
follow written procedure even if that procedure is more stringent than
regulatory rules or guidelines.
We believe that the manual should be
written, to the greatest extent possible, to the existing firm procedures.
True, there may need to be tweaks to existing procedure to heighten firm
compliance, but rarely is there a complete overhaul of the procedures the firm
has implemented by action. This approach tends to result in much greater compliance
with written procedures and is generally welcomed by regulators as the written
procedures are customized for the individual firm.
The other important considerations in the
development and updating of procedures are to keep in mind the human and financial
resources of the firm. Written procedures must make business sense if they are
to stand a chance of being complied with by the firm. Procedures that are
expensive or are beyond the availability or capability of staff will either be
ignored or management will decide to risk an audit deficiency in order to avoid
So what appeared as straightforward is actually an
art. Procedure development calls for the author to understand the operations of
the business, how the firm earns revenues and where the compliance risks and
conflicts of interest lie. Our professionals excel in understanding the firm’s
operations devising an appropriate compliance system/solution rather than
utilizing the cookie cutter approach across all firms.
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