A recent UK Financial Services Authority decision gives some insights as to its expectation as a regulator of the role of a compliance officer. Although ASIC has not taken similar action in Australia, it does have banning powers.
The FSA fined a hedge fund manager compliance officer 14,000 pounds and banned her from performing any significant influence function in regulated financial services for failing to carry out her duties with due skill and care. She was declared not a fit and proper person.
Dr Sandradee Joseph held the Compliance Oversight controlled function and the Money Laundering Reporting controlled function at Dynamic Decisions Capital Management Limited.
When concerns about bond transactions were brought to her attention by investors she failed to read or give adequate consideration to the matters raised. In fact the transactions had been carried out by another employee to conceal losses suffered by the fund following the collapse of Lehman Brothers.
When interviewed by the FSA Dr Joseph stated that she considered her role as a reporting function, in addition to which, she would be responsible for setting up systems. She said she had no responsibility for the Fund as a lawyer because that was dealt with by external law firms and therefore she could “take a back seat” and that she was satisfied that there were sufficient advisors looking at the documentation relating to the Bond. She also said she did not understand the Bond, so she did not consider that reviewing the documents would have made much sense to her.
She relied on false information from the fraudulent employee in respect of the transaction. In fact no lawyers had been instructed.
The FSA concluded she should have taken steps to ensure that the investors’ concerns were investigated, to verify if the concerns appeared to be legitimate, and if so to take appropriate action.
