The 20 Rising Stars of Compliance 2007 - (Page 5) MARKET BEAT PENDING REGS MAY FUSE RISK MANAGEMENT TO COMPLIANCE CAN THIS MARRIAGE WORK? BY MARK MALYSZKO A PROPOSAL IS PENDING AT THE SECURITIES AND EXCHANGE COMMISSION THAT WOULD REQUIRE MORE BROKER-DEALERS TO INCORPORATE RISK MANAGEMENT INTO THEIR COMPLIANCE PROGRAMS. N THE FACE of it, the idea seems like a natural marriage. Compliance is about protecting an institution from regulatory liability and compliance officers are the primary line of defense against the risk of enforcement actions. But compliance and risk management share distinctly different duties at most firms, according to industry observers. Compliance officers, however, are beginning to see how compliance and risk management converge while the compliance officer’s role is evolving into more of a risk assessor. There is disagreement however as to what extent these roles should be combined—or if they should be brought together at all. NEVER THE TWAIN? There is some concern and confusion about marrying more risk management and compliance because each job is built on different models. “Risk [functions are] broader than compliance,” said June Eichbaum, managing partner at consulting and recruiting firm Heidrick & Struggles in New York. SEPTEMBER 2007 “When you’re talking about a chief risk officer, you’re not just talking about quantifiable risk.” For example, on the compliance side, the thinking has traditionally been anchored in insuring against violations occurring internally at a firm. Risk management involves taking into account changes in the marketplace beyond the firm’s control. “You’re trying to anticipate global forces,” explained Eichbaum. These forces include looking for potential growth areas of financial investments, such as the private equity, Eichbaum added. Productbased risk analysis, which examines whether an investment strategy such as private equity is a good business move, is not new in the context of financial risk assessment—but documenting risk management is not normally part of a compliance director’s job. Moreover certain forward-looking risk assessment strategies may spill into compliance responsibilities. A credit risk offiCOMPLIANCE RISING STARS 5
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