Introduction
Hiring qualified individuals for the roles of Money Laundering Reporting Officers (MLROs) and Heads of Compliance is crucial for ensuring compliance with regulatory requirements and maintaining high standards of operational integrity. This guide outlines the FCA's expectations for these roles and provides best practices for firms navigating the hiring process.
FCA Expectations for MLROs and Heads of Compliance - Understanding the Role
The FCA requires firms to have FCA-approved senior management function (SMF) holders for roles such as SMF16 (Compliance Oversight) and SMF17 (MLRO). Individuals in these roles must possess the necessary skills and knowledge, derived from relevant training and experience, suitable for the size and risk profile of the firm.
Training Requirements
Successful applicants should have completed relevant training before applying. The FCA places significant importance on training that is:
Relevant to the firm’s business type.
Current and Up-to-date with the latest regulatory rules and expectations.
Comprehensive enough to cover the depth required for the role, beyond short introductory courses.
The FCA prefers training that includes an examination or assessment, as it demonstrates the individual’s acquisition of relevant knowledge.
Experience Requirements
Experience can come from various backgrounds including compliance, legal teams, lawyers, accountants, and consultants. While it is beneficial to have held junior compliance roles or similar approved positions, this is not mandatory. However, applicants who have primarily worked in front-line roles may lack the necessary skills and knowledge.
In smaller firms, owners or CEOs may hold these functions, but they must still have relevant training and experience to ensure compliance.
Support from Third Parties
Firms may choose to get compliance support from external advisors like lawyers or compliance consultants. However, relying solely on external support for compliance functions is not advisable. The responsible individual within the firm must have enough knowledge and experience to make compliance decisions and know when and how to seek and implement advice.
Time Commitment
The role of a compliance or MLRO function requires a sufficient time commitment. Applicants proposing to dedicate only a few hours per week are typically unsuccessful. Full-time commitment is common, although part-time roles may be acceptable in smaller firms if proportional and sufficient. Conflicts of interest must be managed, and the individual should ideally be independent of client-facing business activities.
Other Considerations
Physical Location: The applicant should ideally work from the firm's principal place of business in the UK.
Senior Leadership: The applicant should preferably be a senior leader within the business to have the necessary incentives and authority.
Best Practices for Hiring MLROs and Heads of Compliance
Key Considerations for Firms
When hiring for these crucial roles, firms should consider the following:
Alignment with Business Model: Ensure that the candidate’s skills and experience align with your firm's specific business model, products, and services.
Relevant Training: Verify that the candidate has completed relevant and up-to-date training that covers the depth required for the role.
Proven Experience: Look for candidates with a background in compliance, legal, or related fields. Experience in junior compliance roles or similar approved positions is advantageous.
Independent Decision-Making: The candidate must demonstrate the ability to make independent compliance decisions and know when to seek external advice.
Time Commitment: Ensure the candidate can commit sufficient time to the role, particularly if they have other responsibilities within or outside the firm.
Conflict Management: Assess any potential conflicts of interest, especially if the candidate is involved in client-facing activities.
Ongoing Development: Encourage continuous professional development and regular training to keep the candidate’s knowledge and skills current.
Use of External Advisors: While external support can be valuable, ensure that the in-house team has the core knowledge and decision-making capabilities.
Clear Communication: Maintain transparency throughout the hiring process, clearly outlining the expectations, responsibilities, and assessment criteria.
Conclusion
Hiring the right individuals for the roles of MLRO and Head of Compliance is crucial for maintaining regulatory compliance and operational integrity. By understanding the FCA's expectations and following best practices, firms can ensure they are well-prepared to meet regulatory requirements and protect their business from compliance risks. Implementing these guidelines will help firms secure qualified candidates who can effectively manage compliance and AML functions.
About Buckingham Capital Consulting
In the ever-changing landscape of FCA compliance, Buckingham Capital Consulting provides expert guidance and practical solutions to help financial institutions navigate regulatory requirements. Our experienced professionals are dedicated to ensuring compliance and strengthening your business's resilience and integrity in the financial services industry.
Buckingham Capital Consulting specialises in guiding financial institutions through the complexities of FCA and Bank of England regulations within the UK financial services sector. Our seasoned team of experts in regulatory compliance and risk management is committed to helping firms meet their regulatory obligations effectively.
For more information, please email info@buckinghamcapitalconsulting.co.uk, or visit our website at www.buckinghamcapitalconsulting.com.
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