Heads of compliance and MLRO applicant competency and capability


INSIGHT
Published
Jan 28th '22
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Authorised and registered firms should have heads of compliance and money laundering reporting officers (MLROs) who are suitably competent and capable of effectively performing the roles. Firms should carefully consider how individuals can demonstrate this ahead of seeking regulatory approval.

 

Heads of compliance and MLROs are important roles within financial services firms and many firms are required to have a Financial Conduct Authority (FCA)-approved senior management function (SMF) holder eg, SMF16 and SMF17. They will need necessary skills and knowledge, from training and experience, to be effective. The level of those skills and knowledge should be in line with the size of the firm and its risk of harm.

 

The following, based on FCA experience of approved applications, should help firms decide if an individual candidate is suitable.

 

Training

Most successful applicants have:

 

  • Already completed relevant training courses before applying to the FCA for approval. They are less likely to accept individuals who intend to complete necessary courses after approval.
  • Attended training courses tailored or relevant to the type of business the firm they propose to work for.
  • Attended recent and up-to-date training to provide relevant knowledge of the current regulatory rules and expectations. Where training happened several years ago, the FCA may ask if the candidate has supplemented their training with recent continuous professional development (CPD) courses.
  • Attended training courses with sufficient length and depth to gain knowledge to carry out the role. Very short ‘introductory’ training courses, alone, do not provide sufficient coverage or depth to be useful for a head of compliance or MLRO, even in the smallest firms.

 

The FCA do not endorse or recommend any courses or training providers, or prescribe the form training should take, whether that’s classroom-based courses, e-learning or course books/materials. However, they have found courses with an examination or assessments are better in demonstrating that an individual has gained relevant knowledge.

 

Experience

While relevant experience to demonstrate competency and capability may come in many forms, the FCA note that:

 

  • Individual applicants do not need to have held head of compliance and MLRO positions before to be successful. Successful applicants may have held more junior compliance roles in the past, such as compliance manager or deputy MLRO.
  • Previously holding the same or similar approved positions is a good demonstration that someone may be suitable for these roles but does not mean an applicant will be automatically approved.
  • Successful applications for heads of compliance and MLROs have a range of backgrounds and experience, including in compliance and legal teams, lawyers, accountants, and consultants. The experience of an applicant who has only previously worked in a front-line role (and in the absence of other training or experience) is often insufficient to demonstrate that they have the necessary skills and knowledge to establish and operate a compliance function.
  • In some smaller firms, it may be appropriate and proportionate for the owner and/or chief executive to hold these functions themselves. However, the FCA still expect those individuals to have relevant training and experience to ensure their business will comply with the relevant rules and regulations for their firm.

 

Support from third parties

Applicant firms will sometimes have or intend to get some level of Compliance Support from external advisors, e.g lawyers or compliance consultants, to help with their application or the ongoing running of their compliance function. This is not a necessary requirement but may be a helpful addition to the firm’s own in-house arrangements. Applicant firms have tended not to be successful where the external support services proposed is the firm’s only compliance resource.

 

Having third-party support is unlikely to reduce a competency concern the FCA have regarding an applicant firm’s head of compliance or MLRO candidate. Even with external support, the individual who is accountable for the compliance and MLRO function should have sufficient knowledge and experience themselves to make relevant compliance decisions for the business, know when to seek advice and know how to implement advice received.

 

Capacity

Many businesses will have a full-time person responsible for compliance and MLRO functions. Some smaller firms may consider proposing an individual who carries out the role on a part-time basis and the FCA have accepted proposals in some circumstances. However, the time commitment to the role must be proportionate and sufficient. Applicants who only intend to fulfil the role for just a few hours per week have tended to be unsuccessful.

 

If the proposed head of compliance or MLRO has another role within the firm or externally, the FCA will want to understand any conflicts of interest. Successful applicants tend to be independent from the client-facing side of the business given a compliance function’s responsibilities to oversee that client facing business.

 

The physical location of the head of compliance and/or MLRO is a relevant factor when deciding if the applicant will be effective in their role. Successful applicants tend to be those working from the firm’s principal place of business in the UK.

 

Heads of compliance and MLROs are usually senior leaders within the business and are often company directors. Individual applicants who are not senior leaders within the business, such as external compliance consultants, are often unsuccessful in their application. These individuals, while potentially experienced and knowledgeable, may not have the incentives or authority required to be effective in these roles.

 

Even if an applicant believes they have sufficient experience or training, the FCA may still request an interview to test this. They will also consider the applicant’s response to the questions asked during the application process, where it helps them assess competence and capability.

 

Source: FCA

 

Download: FCA authorisation – the basic process

 

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At LS Consultancy, our consultants are industry experts that interpret the rules, regulations and spirit of the industry guidelines by assisting you “the client” in implementing a compliance programme that you can be confident is mitigating the risk of financial crime. What we can do:

 

  • We analyse the relevant jurisdictions legislation, regulation and industry guidance to ensure that your controls adopt the highest standard possible
  • Analyse and/ or Enhance your Business Wide Risk Assessment to ensure we consider money laundering and relevant predicate crimes
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  • Greater emphasis on training – why not go through live examples with your RM’s, Operational Teams and Compliance – discuss the areas of concern and come up with compliant solutions.
  • Ensuring your Compliance Monitoring Programme is conducted on a regular basis
  • Engagement with senior management through relevant committees

 

For further information please contact us where our industry experts will be happy to answer your questions.

 

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