The Caped Crusader for Compliance

With most high-risk jobs, you know what you’re signing up for.  If you’re keen on seat-of-the-pants stuff, you become a firefighter, or Nigel Farage’s PR manager (which amounts to much the same thing).  And if you’re fonder of the quiet life, you train as a librarian or (my own fantasy job in moments of high crisis) an indexer (that’s the person who reads a book really carefully and then creates the index at the back – nice quiet work, I’ve always thought).  But working in compliance – either as an MLRO (my hero!) or as a general compliance person – is rather more sneaky: it’s a dangerous job masquerading as a quiet one.  It’s a bit like applying to be mild-mannered, bespectacled Clark Kent, and then finding out that they expect you to wear your undies on display and be Superman.

A dangerous job, I hear you say in disbelief.  What’s so dangerous about having to *stifle yawn* read legislation and produce policies and *fail to stifle yawn* procedures?  Ah, but that’s not the whole job, as today’s announcement from the UK’s Financial Conduct Authority reveals.  David Caplin and Jeremy Kraft, former senior executives of Martin Brokers (UK) Limited, have been fined and banned for “compliance and cultural failings”.  This does not mean that they never went to the opera and couldn’t name three of Shakespeare’s tragedies.  But rather, as Georgina Philippou, Acting Director of Enforcement and Market Oversight at the FCA, says in the press release: “Mr Kraft and Mr Caplin were responsible for setting the right culture at Martins and ensuring that the firm’s risk management systems and controls were adequate to oversee its broking activities.  They failed to do this.  Proper systems and controls were non-existent and there was a culture at Martins where revenue came first and compliance was seen as unimportant rather than as an integral part of the running of the firm.”  Stagger back clasping heart in horror – compliance unimportant!

Looking at the men individually, we are told that former CEO Caplin “presided over a firm where the compliance culture was extremely weak [and] failed to ensure the effective oversight of the firm’s compliance function and the timely and adequate implementation of recommendations made by an external compliance consultancy”.  Moreover, he was “reluctant for compliance to have any role in broker oversight” and “failed to ensure that brokers behaved ethically and that there were proper controls to monitor the propriety of commission income and entertainment spending”.  It all came home to roost when brokers at Martins were induced to assist in LIBOR manipulation in exchange for corrupt brokerage payments, over a period of several years.  Mr Caplin has been fined £210,000 and banned from holding a significant influence function at any FCA-authorised firm.

Turning to compliance officer Kraft, the FCA says that he “failed to give due attention to his responsibilities for Martin’s systems and controls, did not properly oversee brokers and did not challenge Caplin on compliance matters”.  He also “delegated other compliance responsibilities to unqualified members of staff and failed to act on the advice of an external compliance consultancy which identified serious compliance deficiencies”.  Mr Kraft has been fined £105,000 and banned.

Perhaps we are misled by the job being so paper-based – we think it’s only a paper responsibility.  But promoting and maintaining a good compliance culture is far removed from paper; in fact, a paper-based compliance culture is a weak one.  You need to get out there and talk to people and observe them and spot the signs and challenge the weaknesses and the temptations.  Time to don the cape of compliance!