This article was written by Alan K. Halfenger and appeared in the May 2016 edition of NSCP's Currents
Recently, I had dinner with a good friend, who is the Chief Compliance Officer (CCO) and General Counsel of a midsize financial services firm. As we waited for our table, he told me how frustrated he was over an internal meeting in which the discussion focused on the fact that market downturn would force his firm to look for opportunities to reduce headcount and optimize and reallocate costs. Specifically, the two new compliance positions that had been budgeted for 2016 (one a replacement and one for an additional person to cover AML and international issues) were on the chopping block.
However, what really bothered the CCO was not the headcount reduction, but the commentary on his firm’s legal and compliance functions. During the meeting, it was said several times that compliance was critical to the firm and that the firm wanted to take on no regulatory risk. However, the necessity of the additional compliance positions was doubted because they appeared to be redundant. The conversation concluded with a “rah-rah” speech about “doing more with less.” Although I have frequently heard stories like this, it is just as common (if not more common) to sit with COOs and Managing Partners, and hear them complain about the ever-upward spiral of compliance costs.
The purpose of this article is to suggest a new paradigm for thinking about compliance costs which, if implemented wisely, will drive how firms spend money protecting themselves on regulatory matters and, more importantly, will stop many of the budget battles being waged.