Opinion: No one cares about compliance

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Financial adviser coach Tony Vidler asks the question on many Australian advisers’ minds: What's the issue with all this compliance stuff in financial services?

Well...there are two issues really. The first is there is too much of it, and the second is that because there is too much of it advisers don't know how to tackle it.

There is an entire "compliance industry" now that naturally suggests compliance is THE Answer to an advisers business problems.  That's rubbish of course, but it is to be expected.  The first issue with compliance is that at the international level it would appear that it has already gone too far, and needs to be wound back.

The truth is compliance internationally has begun to fit in at one of two extreme ends of the spectrum, depending on the local government and market regulators views on interventionism:

1.  It is a non-issue completely, or,

2. It is a barrier to doing business.

There is already little middle ground...compliance approaches fall into one of the extremes.

Allow me to explain why I think that...

First, let's be sure we understand exactly what the word itself means:


n. submission;

a.yielding; acquiescence; consent.

And equally, the next key word:


a.yielding; obedient; civil

So, compliance is simply about obedience.  It is an entry ticket to the business.

Obeying the minimum prescribed standards of the laws of the land is something that philosophically is a no brainer for professionals, and well-designed consumer protection law shouldn't present significant hurdles for most professionals. Ideally, it is about ensuring an acceptable minimum standard of behaviour and professional delivery is adhered to that protects consumers and ensures consistency of information and levels the playing field.

At one extreme of the compliance spectrum we have the situation where the manner in which regulation has been prescribed and evolved in some jurisdictions borders on the insane.  Yes...I am looking at you in particular United Kingdom.  Go to the back of the class.

Any regulation of a highly prescriptive nature that intervenes and distorts normal market behaviour is bad regulation.  The UK approach is in essence the same as giving Moses 100 tablets of Commandments and telling him nobody is allowed to know what is on the 99th tablet until they've learned the first 98.  Guess what?  People – those very consumers you are trying to protect – opt out of the whole Commandments thing...it all gets too hard.

In New Zealand they were blessed in that they lagged much of the world in moving to a regulated financial advice space, and were lucky to have folk who looked overseas, saw the flaws, and designed something quite different.  They have a principles-based regime where objectives are set, but it is open to interpretation as to how one achieves them. That is not without its dangers for financial advisers of course, but for most professional advisers in NZ regulation was pretty much "business as usual".

Compliance requirements should not be incredibly difficult for practitioners to work with, or present barriers for consumers to engage professional advisers.   It should not prevent the real work getting done of helping clients progress and achieve their financial goals.

Here's the tip for market regulators:  nobody that matters cares about compliance any more.

In the principles-based regulated world, it is basically business as usual for professionals (albeit with a few more forms and some additional costs).  For those advisers for whom compliance – merely obeying and meeting some minimum legal standards – is a concern, the bad news is most consumers, regulators and professional advisers don't care that it is an issue for you.

In the heavily prescriptive regimes, consumers appear to be opting out of using advice or financial products in increasing numbers.  Clearly they do not care for the compliance environment they have been delivered.  Advisers are opting out too....product manufacturers are opting out or consolidating....nobody that produces or consumes financial services cares about compliance.

Obviously professionals have to be cognizant of the laws and ensure that all 100 tablets of local Commandments are adhered to. Which brings us to the second issue - how to ensure that you tackle it properly and get rid of any compliance concerns?

It is simple.

Get stuck into it as early (and as regularly) as possible, and give it the full attention and effort it needs.

  • Sue Laing - the risk store on 13/05/2013 3:42:03 PM

    Well said Tony and Jamie. For my two cents' worth I don't only blame the regulators. Far from it. The dealers whose executives are variously liable for advisers' actions have chosen to interpret - or relegated the interpretative role to middle management who have in turn chosen to interpret - the legislation in so many different ways and have used legs and regs to create concrete boots for so many advisers trying the swim with the tide, that the myriad compliance rules and regimes have rendered the industry outcome as little more than a joke. Except in the long run it's not funny because the only ones who will genuinely pay for the privilege of being highly confused and disenfranchised by our whole industry is the poor consumer.

  • Jamie Forster on 13/05/2013 2:48:49 PM

    Terrific article

    Having previously worked I compliance as a compliance manager with ASX I have a healthy respect for compliance.

    Compliance was once described to me as being like the brakes on a car. Brakes were not installed on cars to enable them to stop but with the intention of enabling the driver to go fast with confidence and in safety.

    However, compliance in Australia is more analogous to making it a legislative requirement to fit all Australian cars with speed limiters limiting the car to 40kmh, fitting all seats with four-point seat belts, making all drivers have monthly license tests, making all drivers hand any actual and potential passengers with a copy of their license and a statement as to the potential consequences of being a passenger in said car no matter how likely and then not allowing drivers to go further than 20km without logging a trip plan.

    Compliance no longer protects the consumer or serves their interests.

    I have to acknowledge that as an industry we must take a fair amount of the responsibility as we have failed to self-regulate. As a consequence we have handed the compliance responsibility to a punitive bureaucracy with little understanding of what it is they are regulating.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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