With the two new UK regulatory bodies taking power since April 2013 keen to flex their muscles and prove to both parliament and the public the mistakes of the allegedly light touch Financial Services Authority are behind them, it has never been more important for firms to ensure compliance is right.
This is not just to avoid the heavy costs of reviewing procedures and previous documentation when a current problem is discovered, let alone the legal costs of defending an enforcement action. It extends to the possible costs of a fine itself and the impact of the reputational damage when it is made public, hard enough for any firm but potentially devastating for a family office.
When considering whether to hire your own compliance resource or outsource this function, there are many non-financial benefits of properly employing an in-house compliance resource to consider. However, firstly it is important to clarify ‘in-house’. It does not necessarily refer to a full-time employee and in fact many family offices and smaller investment firms may utilise a part-time employee e.g. 50% of a normal week; this could be completely flexible, fixed as two and a half days or might be a few hours midday every day. Especially advantageous to those employees for whom childcare is an issue.
However, as a professional, that employee would still be expected to be on call by phone and/or email the other 50% of the time so the value for money is far better compared to an outsourced resource (where the charge includes a contribution to the consultancy’s overhead as well as profit margin).
One of the main operational benefits of utilising a direct employee is that the firm gets to choose not just the experience but also the personality of the individual to suit their exact needs. This is even more important than normal in a family office environment where not only an element of cultural empathy may be needed but in performing the difficult role that is compliance, the balance of diplomacy and tact while still ensuring the firm remains compliant is even harder to achieve given the number of high-powered individuals that can frequently be found in such offices.
**Sensitive issues**
In particular, the areas of anti-money laundering and know your client can demand particular sensitivity with family offices where confidentiality and privacy are key. Therefore, a permanent employee familiar with the whole background of the firm and the underlying source of funding is particularly beneficial.
This can range from taking a subjective but fair approach to following the ‘know your client’ identification procedures through to successfully investigating any non-standard transfers; in both situations without causing undue breaches of privacy while still ensuring the firm is not just compliant but seen to be so, through adequate documentation.
Another obvious benefit of a permanent resource is the history and knowledge that is gained, whether of products and services, operating procedures and of course the individuals dealt with as to backgrounds, personalities and reporting lines.
This also applies to regulatory history including why certain exemptions may have been granted, as well as any previous issues with the regulatory authorities and how these were resolved.
Equally important, it also applies to ongoing regulatory relations where any personal contact developed is of value.
Finally but crucially clients feel more comfortable dealing with a permanent employee whether because they are considered more confidential or just more familiar (and similarly with counterparties and suppliers e.g. auditors and administrators/custodians).
