31 Jul Building a Strong Antitrust Compliance Program
With the Dodd-Frank Act in full swing and the Consumer Financial Protection Bureau (“CFPB”) seemingly issuing a new regulation or rule proposal each week, it is the right time for financial companies to evaluate and strengthen their compliance programs as a preventative bulwark against federal antitrust violations.
Antitrust compliance should be a top priority of any financial company who expects to stay ahead. Complicated rules and numerous regulations have saturated a market that nearly drowned under the weight of the fraud uncovered after the 2008 financial crisis. Out of that crisis, we were handed the Dodd-Frank Act and the CFPB; both designed to regulate how the financial industry will operate.
Banks looking to upgrade their compliance programs need to understand the basics before getting started.
Let the Market Dictate Tracking Communications
Antitrust compliance relies heavily on tracking communication between competitors to ensure there is not a potential for collusion. But how far should company executives or compliance officers go in monitoring the communications of their employees?
Many banks communicate with each other for a variety of reasons. Compliance officers should hold regular meetings with staff to ensure they understand which banks are competitors and which are partners. Internal compliance rules should indicate just how much reporting should be done when employees have contact with competing banks. Having workers report to executives every time they make a phone call will have the compliance department buried in useless information, and is therefore unnecessary.
Compliance should meet with staff to clarify what conversations are acceptable and which communication should be off limits altogether. Certain types of communication may need to be banned to head off potential violations. Likewise, banks can monitor routine communications and relay confidence to employees that there is no impropriety.
Not All Transactions are Identical
Banks and financial institutions often offer many types of services to consumers. For different transactions, particular forms of violations could occur if precautions are not taken. A compliance program should be tailored to each type of operation instead of a “catch-all” type program.
Employees of financial companies need to be aware of the various types of violations that can occur and understand what obligations they have under the law. To accomplish this level of comprehension, executives may require the compliance department to develop individual plans for each service the banks provide.
While understanding which laws need to be followed for each transaction may sound logical, translating that into a policy to train employees and desk traders may be ambitious. While speaking with banks about certain transactions that are part of normal business relationships, conversations may arise that could blur the lines on what constitutes a violation or antitrust risk.
Employees should expect to have ongoing training on the types of conversations that are acceptable and those that may cause a compliance finding. Department heads should be provided additional training to help them identify problem areas before they become antitrust issues and prevent a potential discovery.
Executive Officers Must Oversee the Process
Industry experts have expressed concerns that some compliance programs are not designed from the top down. The government is adamant that compliance programs must involve a company’s senior executives. Most financial institutions understand the reality of this proposal and have taken steps to include senior management in every phase of the compliance plan development. That being said, officers of the company can also hinder the development of a program.
Executives do play a major role in ensuring a compliance plan is followed. Having employee meetings where the CEO or senior management speaks about the importance of supporting compliance programs can go a long way in keeping staff motivated.
In today’s financial climate, where regulation is tighter than it has ever been, executives understand having a robust compliance program is not just preferred – it is essential. Since most top executives are not familiar with the antitrust law, having an experienced and knowledgeable compliance team is essential in being confident that your compliance program is up to the task.
Educate Employees on Importance of Following Compliance
Education is essential and plays a key role in any new compliance program. Informing staff of the penalties they face if antitrust violations are uncovered is not as much about frightening them as it is about instilling the importance they must place on compliance.
While it is not common, we have seen instances in the industry where employees attempt to cut corners with compliance, or even take advantage of a situation for personal gain. They need to understand that if they get caught colluding on a transaction, they may be found guilty of a felony. The Justice Department is making strong examples out of financial industry professionals who they feel are damaging the market through antitrust violations.
When employees fail to adhere to compliance requirements, they not only place themselves at risk but the entire firm. Financial institutions need to develop their compliance program by not only stressing the seriousness of federal penalties but also have internal sanctions in place for staff who do not follow compliance reporting guidelines. While there may be legal ramifications for some major violations, staff should also be made abundantly aware that they will be held accountable for not living up to internal compliance program requirements.