SEC Chief of Staff Anticipates Future Challenges for Compliance Professionals

SEC Chief of Staff Andrew J. Donohue outlined future compliance challenges in his remarks at the 2016 National Conference of the National Society of Compliance Professionals.

Mr. Donohue predicted, among other things, that:

  • compliance expertise will encompass “a far broader set of subjects, including expertise in technology, operations, market, risk, and auditing, to name a few”;
  • because the “general trend of declining or stagnant top-line revenue growth will trigger an ever-increasing fixation on expenses,” compliance departments will have to ensure that “they have the funding necessary for discharging their critical function as well as the technological and other resources that are essential to their success”;
  • because compliance is “often expected to develop front-end controls that will prevent the business from violating regulations or disregarding established policies and procedures,” technology will catalyze a “more holistic model”;
  • globalization and increasing business complexity will force firms to determine “which regulatory requirements apply, and how they should be interpreted and implemented”; and
  • firms and regulators will have to monitor technological developments and increasingly automated systems in order not to establish a “variety of separate systems that perform similar or overlapping functions.”

Mr. Donohue concluded that preparation for a future of compliance is key:

Much like in medicine, when it comes to compliance, an ounce of prevention is truly worth a pound of cure.

Lofchie Comment: Mr. Donohue predicts a future in which compliance expenses increase significantly. He does not acknowledge, however, the problems that rising costs may cause our economy and society. This is not to decry regulation in general; one does not have to be a libertarian to acknowledge that regulation’s costs sometimes can outweigh its benefits. It should be clear, however, that as regulatory costs rise, (i) there is a reduction in services or an increase in the cost of those services, and (ii) increases in cost generally affect small firms more than larger ones since regulatory costs tend not to rise in proportion to the size of a given firm.

Mr. Donohue’s analogy between compliance costs and medical expenses is worth considering. Certainly, it is better to avoid an illness than to suffer from it. The bleak reality is this: no one can afford to spend an unlimited amount of resources on preventing problems. Even if a person or government did so, things still would go wrong, since human bodies and regulatory systems are enormously complex and often unpredictable. The cost of medical care in the United States is much higher than it is in the rest of the world, and the benefits of that care are not always commensurate with the cost. As with our healthcare system, so with our system of regulation.

One final note: Mr. Donohue is right when he says that the challenges of being a compliance professional have grown enormously. Meeting those challenges means mastering a range of skills that surpasses the compass demanded by most professions.