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Compliance Regulations in Financial Services: Separation of Responsibilities and Remuneration Requirements

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Financial institutions must adhere to strict regulations regarding compliance responsibilities and remuneration requirements for individuals involved in these functions. This article discusses key points related to the separation of compliance duties and compensation rules, particularly for in-house counsel.

Separation Requirement

The regulation emphasizes that individuals responsible for compliance functions should not be placed in positions where there is a real or potential conflict between their compliance responsibilities and other roles. In-house counsel, who traditionally serve as advisers to business units, may find themselves in such a situation.

  • The separation requirement aims to prevent conflicts of interest and ensure that compliance professionals remain objective.
  • This means that an in-house counsel’s role as an adviser to business units may need to be adjusted or separated from their compliance responsibilities.

Remuneration Requirement

The regulation states that the remuneration of individuals responsible for compliance functions should not compromise their objectivity. This implies that compensation should not be tied to the financial performance of the business unit they are advising, but rather to the overall performance of the bank.

  • The remuneration requirement aims to ensure that compliance professionals remain independent and unbiased in their decision-making.
  • Compensation structures may need to be revised to align with this requirement.

Exemption

Banks may be exempt from these requirements if they can demonstrate that following them would not be proportionate to the nature, scale, and complexity of their business. However, such exemptions are typically granted only on a case-by-case basis and subject to specific conditions.

In summary, the regulation aims to ensure that individuals responsible for compliance functions maintain their independence and objectivity, and that their compensation is aligned with the overall performance of the bank.