‘Compliance 2.0’ and Compliance Careers in Finance

Anyone looking for jobs in the compliance field these days is bound to encounter the hot buzzword in the profession, “Compliance 2.0.” Mostly this phrase is marketing spin—but it’s worth dissecting in a bit more detail, because there is some substance behind the idea, and that can have some importance as compliance professionals look for their next gig in the financial sector.

The fundamental concept is this: “Compliance 1.0” is the traditional, narrow way of interpreting compliance, where the compliance officer simply manages a compliance program as part of the company’s larger effort to reduce legal liability. “Compliance 2.0” is a supposedly more enlightened approach, where the compliance officer is part of the firm’s leadership team, and works more directly to encourage a strong “tone at the top” and inspire employees to do the right thing, regardless of what all those specific compliance policies are. The rules and policies are important, of course, but not as crucial as that deeper commitment to an ethical culture—which a company demonstrates by empowering its CCO.

That’s the theory, anyway.

Compliance 2.0 is one of the few ideas that started outside financial services and is now seeping into Wall Street compliance, rather than vice-versa. It traces its origins to a few leaders at the Society of Corporate Compliance & Ethics, who noticed how regulators in the 2000s were settling more and more cases of corporate misconduct (usually violations of the Foreign Corrupt Practices Act) by demanding that the company create a stand-alone chief compliance officer. That CCO could not be the general counsel, and had to report to the CEO or the board’s audit committee directly.

By 2011, the U.S. Sentencing Guidelines—which federal prosecutors follow when deciding how much punishment to mete out to a company—had been amended to say that in an effective compliance program, the CCO should have a direct line of reporting to the audit committee or some other top-level supervisory group at the company. Compliance 2.0 had arrived.

What does all this mean for compliance officers in the financial sector? Potentially quite a bit. Historically, the duties of compliance officers in different types of financial firms—say, investment banks and asset management funds—were quite distinct. You could not easily move from one type of firm to another, and for many firms still in a Compliance 1.0 mindset, that remains true today.

But as Compliance 2.0 creeps into the field, that means all firms will want a different type of compliance officer candidate: someone with more seniority, who can lead a team, who can articulate compliance objectives and plans to a wide range of employees. You might need to be better at creating change, rather than administering a program. And when examiners from FINRA or the Securities and Exchange Commission show up for compliance reviews asking about the firm’s culture—as both agencies have said they plan to do—the firm will need a CCO who can talk about compliance in those terms.

Perhaps, then, as Compliance 2.0 spreads, compliance officers with the proper leadership qualifications might be more valuable, or might have an easier time moving from banking to asset management and back again. If you want a great example, look at Steven Cohen’s new investment firm Point72: last year, it hired away the head of ethics and compliance for United Technologies Corp., Kevin O’Connor, to be Point72’s general counsel. You don’t get much different than UTC and Point72. It may be a sign of things to come.

This post originally appeared in ComplianceX.

Leave a Comment

You must be logged in to post a comment.