Why outsource the compliance function?

Abstract

Purpose

To highlight some of the issues that small firms must address when deciding to avail themselves of the services of independent compliance consultants.

Design/methodology/approach

Explains why investment firms use independent compliance consultants, discusses practices the FSA has published to ensure a firm meets with its regulatory requirements when using an external consultant, reviews the risks a firm faces when delegating part of its compliance function to a consultant, and suggests factors a firm should consider when selecting and employing a consultant.

Findings

Among the risks a firm must manage when using an independent compliance consultant are that the consultant will turn a blind eye to improper practices, fail to raise issues with aspects of the firm's business the consultant does not understand, become lazy as a result of familiarity with the firm, or not be subject to the same regulatory regime as the firm is. A firm should analyze how proposed outsourced arrangements fit with its reporting structure, strategy, and overall risk profile. As part of a formal process of consideration, the firm should conduct due diligence on the outsourcing consultancy to ensure that appropriate expertise, financial stability, and adequate resources are available.

Originality/value

Provides an investment firm considering the use of an independent compliance consultant a useful list of considerations from an experienced compliance consulting firm.

Citation

Duck, T. (2006), "Why outsource the compliance function?", Journal of Investment Compliance, Vol. 7 No. 3, pp. 67-69. https://doi.org/10.1108/15285810610711491