At PEI ‘s Private Fund Compliance Forum, one attendee asked how to make compliance easier. That caught the room by surprise. If compliance was easy, we would likely would not be at the Forum.
But it did get me thinking about ways to make compliance easier.
First, compliance is hard because the laws we comply with are complicated. Lots of the blame for difficulty can be pinned on Congress, the state legislatures and the regulators. The more complex the law, the harder the compliance.
The most obvious way to make compliance easier is to set simple rules. That may make it easier to comply, but more difficult for the organization.
Take political contributions as an example. For me, there is the SEC rule that limits investment adviser contributions. Layer on the state level requirement and you end up with a complicated list of what you can do and cannot do.
To make compliance easy, just ban all political contributions. Of course you run into the problem with the jurisdictions that prohibit a prohibition on political contributions. You also run into the problem of employees wanting to make political contributions. Your easy approach to compliance just got more complicated.
Or take the example of bribery and corruption. Your compliance policy could just ban all gifts and entertainment. But that leads to the awkward position of not even being able to buy a business prospect a cup of coffee as you are discussing an opportunity.
To make compliance easier, the organization and employees will need to sacrifice opportunities. The world is too competitive to sacrifice large swaths of opportunities that pose little or no risk to the organization.
That does not mean that compliance has to be hard in all areas of the business. You need to look at the risks and opportunities. Find the areas where you can make simple rules that don’t limit low-risk opportunities. Unfortunately, there are not that many.
Go back to my first point. The lawmakers and regulators keep making more and more rules. It’s rare to see a roll-back. As the laws grow, compliance requirements grow.