Independence of the Compliance Function & What Makes a Compliance Officer Successful

Elizabeth Fiorelli, Assistant Adviser of Global Legal and Compliance , Sumitomo Mitsui Trust Bank, Limited, New York Branch

This article addresses the question of why the Compliance Function in financial services firms, including banks, needs to be independent, and the factors that can contribute to such independence. “‘Independent’ is generally defined as not influenced or controlled by others in matters of opinion or conduct.” Industry guidance is assessed, as well as specific jurisdictional requirements and expectations relating to the independence of the Compliance Function and also how it ties into the concept of “Three Lines of Defense.” The concept of “Three Lines of Defense” in the organizational structure of financial firms has been adopted by many jurisdictions, with the “First Line of Defense” (“1st LOD”) representing the business risk “owner,” the “Second Line of Defense” (“2nd LOD”) representing the compliance and/or risk management function (which may simultaneously advise and challenge the 1st LOD), and the “Third Line of Defense” (“3rd LOD”) representing Internal Audit or its equivalent.