Institutional Self-Regulation (Compliance)

Published by Vandeplas Publishing LLC.; July 2018

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The duty of financial institutions to self-regulate their compliance with the law was triggered by relatively recent developments. Financial institutions (banks, mutual funds, securities exchanges and advisers) have grown larger and were operating internationally. Government and outside regulators could not effectively supervise and prevent institutional violations. The failures and violations of such institutions were costly to the country, to their employees and to their investors. The failures prompted legislators and regulators to require these institutions to self-regulate and self-police to prevent violation of the law.

The Law of Institutional Self-Regulation (Compliance) is addressed to law students and practitioners. It aims at understanding and managing a system of self-regulation by financial institutions by a dual system of both law and culture. To be sure, the law requires institutions to self-regulate. But rules of law are not enough. In fact, the main mechanism for self-regulation is institutional culture. Like law, culture is a system of rules and their enforcement. Unlike the law, culture rules are established and enforced by institutions, internally. Thus, both law and culture aim at ensuring institutional compliance with the law.

This book notes the differences between the Law Officers and Compliance Officers, the evolving recognition of compliance as a profession, and the rise of compliance officers’ independence. The book offers principles, approaches, and techniques, aimed at detecting and preventing institutions’ legal violations such as, monitoring and investigations, employees' self-examination and rewarding employees for ensuring and supporting compliance with the law. To be sure, each institution, has its “parents,” history, business, powers and weaknesses, aspirations and competitors. This is why institutional self-regulation cannot be uniform and its culture must be adjusted to the law in its own special way—to reach the same application of the law to all.

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