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Building the Right Team

With no sign of waning regulations, compliance officers remain essential to the architecture of the securities industry.

Compliance projects top the priorities lists at many Wall Street firms this year, putting the spotlight on chief compliance officers. "In light of all of the financial scandals that we have been through, the government and self-regulatory organizations are requiring companies to improve their compliance function," says Pamela Rogers Chepiga, a litigator with law firm Allen & Overy who represents financial firms.

Although many on Wall Street acknowledge the importance of the compliance team, most are still ironing out its role and breadth. Who will lead the compliance initiative? Which compliance projects will take priority? How will the chief compliance officer build a team and gain support from the rest of the firm?

Compliance officers have played a part in the industry for a long time, but new regulations have added heightened accountability to the position. Mimicking similar rules on the broker-dealer side, the Securities and Exchange Commission has adopted the "Compliance Rule" for mutual funds. By Oct. 5 of this year, funds and their investment advisers will be required to establish comprehensive compliance policies and procedures and appoint a chief compliance officer who will report to the fund's board of directors.

Lori Richards, the director of the Office of Compliance Inspections and Examinations at the SEC, described the role of the chief compliance officer during a recent speech at the Investment Company Institute/Independent Directors Council Mutual Fund Compliance Programs Conference: "The chief compliance officer will need to not only understand the regulations, but how the industry works, the products and services offered by the firm, the nature of the services provided by service providers and the firm's operational and compliance structure," she said. "The chief compliance officer is now a risk manager, a strategist and, importantly, an integral part of senior management - someone with a voice at senior corporate levels that cannot be ignored."

Establishing Roles

The first step toward achieving a compliance culture, according to Allen & Overy's Rogers Chepiga, is raising the profile of the CCO. "Historically, there have been many firms in which compliance was a weak sister. If you didn't cut it in the general counsel office, you were shifted into compliance," she says.

Firms must immediately put more money into their compliance programs and bring aboard qualified and experienced leaders, she adds. "It's a change of culture in many organizations, but unless there is sufficient money and talented people devoted to compliance, it's not going to work well," she explains.

Louis Passauer, the CCO at New Orleans-based brokerage firm Pan-American Financial Advisers (PAFA), says that, in recent years, his firm has established compliance checkpoints throughout the field to support its many independent advisers. Although field-supervising principals already existed to assist in other areas of business, the firm has added compliance responsibilities to their charge, he continues. "My hope is to have each of them act as a chief compliance officer, and we want to train them in that regard," he says, adding that requiring more operational and support personnel to obtain licenses, such as their Series 7 certification, helps employees understand the bigger picture of a compliance culture.

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