Models for Compliance in the Financial Service Industry: Theory versus Practice - is a best practice model feasible in an environment of regulatory flux?

Burdon, Wendy (2016) Models for Compliance in the Financial Service Industry: Theory versus Practice - is a best practice model feasible in an environment of regulatory flux? Doctoral thesis, Northumbria University.

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Abstract

The overall purpose of this thesis is to examine the models for effective compliance, and those currently adopted in practice within the financial service sector. The need for financial service organisations to maintain a robust compliance function has developed due to ever increasing regulatory demands following the most recent global financial crisis, alongside concerns over compliance culture within financial service organisations. An overarching research question exists of why the compliance function is often viewed as business inhibiting within practice.

This research engaged with practitioners with experience of working in financial service organisations and regulatory bodies. Repertory grid interviews (a technique stemming from Personal Construct Theory) explored practitioners’ personal worldviews of what comprises effective compliance via consideration of experiences ranging from ‘worst’ to ‘aspirational’ compliance.

Practitioners do not align perceptions of benefits and costs of compliance in a linear fashion, when comparing worst and aspirational compliance experiences, which challenges the traditional models presented within academic literature. Barriers to regulatory compliance were highlighted, when exploring personal constructs with recurring themes of culture (management buy in) and also judgement (spirit, as opposed to, letter of the law). Compliance officer are highly aware of the importance of relationships with the regulator, and remain proactive in prioritising workload around the regulatory approach.

An alternative model for compliance is presented in the form of the ‘Compliance Trust’. The model results in a compliance community which would operate independently from the financial service firms that they serve, and differs from traditional commercial consultancy or outsourcing with the emphasis on societal contribution and integrity, rather than economic motivations. The compliance trust would benefit organisations, via rotation of experience and knowledge sharing. This research provokes reflection on current practice in comparison to existing academic theories, and seeks to identify whether alternative models are viable for the future of compliance approaches within financial service practice.

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