by Bruce A. Ortwine
Effective corporate governance, oversight and compliance with all legal and regulatory requirements are critical elements to any company’s success, no matter what its particular industry. Their importance is especially critical in the highly regulated sector of financial services, which is both subject to comprehensive and sometimes opaque regulations, and has also been susceptible to both monetary fines, other penalties and public condemnation for noncompliance with those regulatory requirements. For these reasons, financial institutions represent a highly attractive industrial sector for persons interested in a career in the areas of corporate governance, oversight and compliance.
For more than the past decade, financial institutions have been subject to increasingly punitive financial and other penalties, including governmental enforcement actions, civil litigations and even criminal prosecutions at both the corporate and individual levels, for failure to implement and/or maintain effective corporate governance and oversight functions and effective compliance programs. Inadequate corporate governance and oversight by both boards of directors and senior management, as well as obvious deficiencies in compliance programs—with in some cases compliance programs designed specifically to evade regulatory requirements—have proven to be both highly costly to many financial institutions, both large and small, in both financial and reputational terms. And these deficiencies have repeated themselves over and over again, as the highly publicized and criticized corporate governance/oversight and compliance failures of one financial institution have seemingly not prompted other financial institutions to change their own lax practices.
Deterrence—that is, severely punishing one financial institution to prevent others from similar misdeeds—has not proven effective. Retribution—that is, severely punishing a financial institution for the sole purpose of punishment—has proven more effective, with the corresponding benefit of hundreds of billions of dollars of new streams of revenues in the form of monetary fines flowing to the government.
Related to this, the 2010 Dodd Frank Act, enacted in the wake of the 2008 financial meltdown and the ensuing “Great Recession,” authorized the implementation of hundreds of new regulatory requirements that have imposed—and are still in the process of imposing—significant, new regulatory burdens on financial institutions.
As a result of all the many governmental enforcement and other actions brought against the financial industry, as well as the Dodd Frank Act and its resulting new regulations, financial institutions have had no choice but to significantly expand and improve their corporate governance and oversight functions and their compliance programs, all-too-often pursuant to specific, written requirements as part of enforcement action/deferred prosecution-imposed agreements with governmental agencies, and with corresponding specific timeframes for implementation.
This has created enormous opportunities for both law firms and other consultants, who are often hired involuntarily through the consequences of these enforcement and other governmental actions, and who specialize in advising financial institutions in how to improve their corporate governance and oversight functions and their compliance programs. It has also created enormous employment opportunities for the many individuals who financial institutions need to provide the human resources required to fully implement these functions and programs.
With regard to the latter, in the past several years financial institutions have added tens of thousands of compliance staff to administer their compliance programs and to report to their boards of directors the status of the effectiveness—or ineffectiveness—of their institutions’ compliance programs, in order for their directors to carry out their own corporate governance and oversight requirements.
A career in compliance logically leads to enhancing corporate governance and oversight. The compliance function in any organization is a critical one, both in terms of managing an effective compliance program and also one that any competent board of directors needs to rely on heavily in fulfilling its own corporate governance and oversight responsibilities. In this respect, an effective compliance program requires that the Chief Compliance Officer (CCO) have a direct reporting line to the board or to a responsible committee (e.g., audit committee) of the board, providing the CCO with a direct means to influence and improve the corporate governance and oversight function.
Law students who are interested in a career in compliance should seriously consider pursuing their interests in the financial services industry, both in terms of the immediate job opportunities in an industrial sector whose regulatory burdens and need for capable compliance professionals will only continue to increase, as well as for eventual opportunities to advise boards of directors on compliance-related issues that will enable the boards to fulfill their own corporate governance and oversight responsibilities.