Working together in HR and Compliance

The HR and Compliance Teams often seem to operate at a distance within the same business, each focussing on their own areas of law and regulation with limited, if any, co-ordination between the two teams. However, in my view, an effective HR Team plays a crucial role in securing the compliance of a financial services business, so much so that I think HR and Compliance should work together far more closely than is typically the case, combining their expertise for the benefit of the whole business.

For any business which provides a service, the quality and competence of its staff is key. The leadership of a business is responsible for ensuring that its staff are fit and proper, qualified for their roles and that they are able to provide the requisite services to clients, at the requisite standard. They are supported by both HR and Compliance in this task. And, of course, both teams play important roles in instilling a positive culture in a business and in the business’ ongoing risk management.

I’m going to try to demonstrate the value to both teams of mutual co-operation by considering the different stages of an individual’s employment at a business.

Recruitment

The recruitment process, by which the business hopefully hires the right people with the right attitude, skills, integrity, expertise and experience, is the first step in ensuring the necessary resource quality.

Compliance can assist with this process by advising HR on what is required, particularly when there are explicit legal and regulatory requirements (for example required professional qualifications), so that HR can understand the requirements and ensure they are incorporated into recruitment advertisements, job descriptions and interview questions. This is particularly important where the business is undertaking particularly complex work such that specialist skills or qualifications are required.

HR can assist Compliance by ensuring that there are proper procedures in place to determine that all successful candidates are fit and proper for their roles and that documentary evidence of the qualifications of employees are held as required by the Codes. HR will likely be the team which conducts or arranges screening of candidates for any relevant criminal offences, regulatory sanctions, social media footprints and so on. As an aside – we have noted that some screening packages do not extend to checking Jersey criminal and regulatory sanction records, so be aware of this when selecting a screening package that is provided by HR or an external service provider.

Importantly, HR and Compliance should work together when considering the remuneration package to be offered for each role. The incentives offered to an employee are, of course, intended to attract the right candidate and influence their behaviour once in post by increasing their motivation to achieve specified goals. However, careful thought should be given as to whether there could be any unintended consequences, including inherent conflicts of interest, in assigning particular incentives to particular individuals (for example advisers receiving product commissions and bonuses on reaching specified sales targets); and incentives may not be appropriate at all for certain colleagues.

Induction

Induction is an important time when a business creates a “first impression” for new staff and sets out its expectations and ground rules.

The HR Team will likely play a significant role in this phase but Compliance will also be involved in providing the required AML/CFT training within 10 working days of commencement of employment and may also assist in establishing and providing any additional training, including specialist training which may be required.  Induction is a great opportunity for Compliance to ensure that they meet and introduce themselves to all new employees and ensure that they are made aware of the firm’s compliance related policies, standards and expectations.

Ongoing

As well as the dissemination of an open and healthy culture within the business, there are a number of tasks which require the co-operation of HR and Compliance on an ongoing basis:

The HR Team will typically have day-to-day responsibility for the Staff Handbook, ensuring that it remains up-to-date, comprehensive and effective. HR will need to work with Compliance to ensure that the Handbook also reflects legal and regulatory requirements and that it is tested regularly by way of the Compliance Monitoring Programme. Compliance will be able to help the HR Team understand the legal and regulatory requirements which are relevant to their work.

Organising training and monitoring compliance with minimum regulatory CPD requirements often takes up a significant proportion of the HR Team’s time. Compliance can assist with this by advising HR or the Training team on the training which is required and appropriate for different individuals and teams, in terms of both CPD and professional qualifications. And HR / Training can support Compliance by assisting with the logistics and practicalities, such as maintaining or coordinating the necessary records.

Appraisals are an important control through which a business can demonstrate it ensures its staff continue to be fit and proper. If the conduct of any individual is such that it triggers a breach of a regulatory requirement, it should be notified to Compliance and any further appropriate action considered at the time of the breach and as part of the appraisal process. Conversely, in the event that Compliance is aware of any deficiencies in an individual’s performance, for example through the identification of repeat breaches of procedure, this should be discussed with the individual’s line manager and should likely feature in their appraisal. Some businesses track breaches, as well as instances of staff excellence, for training, appraisal and remuneration purposes.

Whilst the HR Team plays a key role in ensuring the welfare of staff, Compliance may identify behavioural or performance matters (for example from the monitoring it undertakes) and should ensure that these are appropriately escalated, as they may be indicative of a staff welfare matter as much as one of competence. The HR Team should hopefully recognise the pressures that can be placed on staff at different times, for example prior to a JFSC examination, and provide support, or at least sympathy, where possible.

Departure

When a member of staff leaves a business, the HR Team will often lead and coordinate the process. Good practice is for HR to confirm that the member of staff has filed all necessary internal SARs and raised any concerns as appropriate. There may, in addition, be a need for HR to liaise with Compliance in the event that a departure is unexpected and the reasons for the departure raise any concerns over a legal or regulatory matter. HR should always consider whether there are any lessons to be learned from any departure, unexpected or otherwise.

Even less commonly, Compliance and HR would have to work together in the event that an individual was asked to leave due to significant, prolonged or repeated breaches of a requirement. HR’s expertise in employment law would be needed in such instances, as well as that of Compliance in regulatory matters.

Conclusion

The HR and Compliance Teams are often two of the most busy functions at a business (although that might be disputed by others!). As a result, it can be tempting for each Team to hunker down and concentrate on just getting through its day-to-day tasks. However, as briefly noted above, there is considerable overlap in much of the work undertaken by each Team and co-operation and regular communication between the two can help both Compliance and HR to be more effective, thereby bringing benefit to the whole business.