A total of 35 domestic and international financial intermediaries, banks, asset management companies and stock brokerage firms took part in the first research in Italy, carried out by SDA Bocconi in collaboration with HP and SIA-SSB, on the subject of “compliance risk” in MiFID investment services
In Italian banks and investment companies, the “compliance” role is given to someone in the board of directors or this person reports directly to the board, and this function is taking on increasing importance in the protection of investors.
This is one of the results emerging from the first research study in Italy, carried out SDA Bocconi’sResearch Division in collaboration with HP and SIA-SSB, on the subject of compliance risk with a focus on investment services, as defined by the MiFID Directive.
Taking part in the research, which analyzes the current and future scenario of the organisation of the compliance function, were 35 Italian and foreign financial intermediaries selected from among banks, asset management companies and stock brokerage firms.
Recently, the presence of the compliance function became mandatory both for banks, and for investment companies.
The research is split up into four areas: the positioning of the compliance function in the organisational structure, the roles attributed to the compliance function, the methodologies for measuring, transferring and mitigating compliance risk in investment services and finally the mode of interaction between the compliance function inside and outside the structure.
In terms of compliance to the MiFID directive, the figures recorded over the course of 2007 indicate that compliance with the provisions, which place the emphasis on protection of the investor, is one of the essential values of financial intermediaries. On one hand, this means when the compliance function is coupled with the company’s value system it gains visibility, and on the other hand that when mechanisms link the conformity principle to the incentives system it gains concreteness. For the moment, this “virtuous” situation can be found in only a minority of the organisations surveyed, only 20% of the cases.
While being correctly interpreted, in terms of proposals and consulting support to the company, the role of the compliance function is at times still underestimated.
“In general, the situation appears to be considerably different for intermediaries with international operations and those with prevalently domestic operations the former appear to have already accepted the presence of the compliance function in their organisation, with its role and requirements in terms of resources and instruments,” says Paola Musile Tanzi, head, Financial Brokerage, SDA Bocconi and supervisor of the research.
The research also highlights the positive contribution that, in the majority of cases, the compliance function makes to the process of innovation in companies. Indeed, for 66% of the participants, the communication between the compliance function and the other corporate functions promotes the spread of a culture of compliance and must also generate opportunities for innovation.
From the different company perspectives, solutions arise that aid the operations while still following the “rules of the game”. This vision is shared by the majority of the companies probed, in particular those with domestic operations facilitated by the “physical” vicinity between the compliance function and the “service production units”.
“The new compliance function has become an indispensable tool for the financial operator pursuing innovation, while at the same time guaranteeing protection of the investor. This is taking on increasing strategic importance in the new European scenario which, through MiFID, is seeing a rise in the level of competition and the need for greater guarantees for investors,” adds Renzo Vanetti, CEO, SIA-SSB.
The autonomy of the compliance function today still appears limited. In general, it does not have an independent budget for the planning and implementation of its activities. Only 11 organisations out of 35 state that an autonomous budget exists. This situation mainly relates to domestic organisations and non-bank intermediaries rather than those with international operations and banks.
The instruments for mitigation of compliance risk have limited diffusion: 80% of the financial intermediaries taking part in the survey state that they have no compliance risk mitigation tools.
“HP’s commitment to innovative solutions for compliance is demonstrated by a vast range of solutions and services that guarantee quality control in operating processes: from access to information, to control and approval flows, client relations and relationships with suppliers and partners. Compliance to the regulations must be ensured by a control system for the activities which, in order to prove truly effective in reducing risk, need to follow pre-defined and automated procedures, to be perfectly integrated with the modus operandi of a company,” says Diego Giuliano, business solutions manager HP Services, HP Italia.
In consideration of the results found, the research on compliance could in the future be extended to financial intermediaries throughout Europe.