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Corporate finance firms help businesses raise funding and implement strategic transactions, supporting investment and growth.
This brings responsibility: clients need to be able to trust that firms will act with integrity and manage any conflicts of interest. That trust underpins effective wholesale markets activity.
In our Regulatory Priorities Report[1], we said we would assess corporate finance firms’ compliance functions and their ability to challenge the business effectively. We surveyed 411 corporate finance firms about their compliance resources and activities, receiving 382 responses. Although most firms reported carrying out key compliance activities, the findings also show where more needs to be done.
There is no single blueprint for what effective compliance looks like. We found that firms operate a range of different practices. But the findings also underline an overarching principle that compliance cannot be seen as simply a series of tasks, but a culture that senior managers must embed throughout the business.
Effective compliance arrangements matter in firms of every size
Most firms in the survey were small: 64% had 9 or fewer employees and 89% had fewer than 50.
63% of firms reported having a compliance function that is not dedicated solely to compliance activities and has other business responsibilities. This can create conflicts of interest, for example when the compliance function also plays a role in revenue generation.
We recognise that compliance arrangements will differ according to the nature, scale and complexity of the business. They should be proportionate to the risks involved. But arrangements are only proportionate if they allow good outcomes – high standards of conduct and effective conflicts management – to be delivered.
It is particularly important in small firms, where decision-making may be concentrated in a small number of people, that the compliance function has enough presence, authority and access to exert influence and provide meaningful challenge.
The second line of defence must also scale as a firm grows, or as its activities take on greater impact. 32 firms in our survey act as AIM nominated advisers, AQSE corporate advisers/brokers or listing sponsors. Where a firm has an important public markets role like these, strong and credible challenge is essential to maintaining market integrity and investor confidence.
All firms should have procedures and practices that meet the needs of the market they operate in.
Third-party support requires appropriate oversight
Almost all respondents, 90%, used some form of third-party compliance support.
External expertise can be valuable, especially for smaller firms. But responsibility for regulatory compliance remains with the relevant senior management function holder.
Firms must stay actively involved, understand the advice they receive and maintain effective oversight of any third-party support.
A strong compliance culture needs a holistic approach
Most firms reported carrying out key activities we expect and 47% carried out all the activities covered by the survey. However, the wider gaps were in practices that help bring compliance culture to life.
As the table below shows, these included arrangements for staff to safely raise concerns, keeping breach registers, monitoring complaints, reporting to management and involving compliance in management meetings. A significant number of firms reported not including regulatory compliance in staff performance assessments.
These practices are not simply administrative. They help firms identify emerging risks, target training, strengthen conduct, systems and controls and respond before problems become more serious.
Activity we included in our survey | Number of firms that reported not conducting the activity |
|---|---|
| Not conducting any of the below activities we included in our survey | 7 |
| There is a compliance manual | 32 |
| Compliance regularly review policies and procedures | 38 |
| Staff receive compliance related training | 49 |
| Compliance report (ad hoc) significant risks to the management body | 63 |
| There is a compliance monitoring programme | 67 |
| Compliance regularly advise and assist the business | 69 |
| Compliance monitor the firm’s complaints handling process | 74 |
| Compliance sign off is required for certain business actions | 75 |
| There is a breach register | 82 |
| Compliance attend management body meetings | 82 |
| Compliance report at least annually to the management body | 82 |
| There are arrangements for the disclosure of concerns by whistleblowers | 90 |
| Regulatory compliance forms part of staff performance assessment | 140 |
Firms should consider:
- whether compliance has enough presence, authority and access to influence and challenge the business
- whether compliance is involved early enough in important business decisions
- whether senior managers receive timely and clear information about compliance risks and breaches
- whether staff can raise concerns safely and those concerns are properly escalated and investigated
- whether the firm maintains active oversight of third-party compliance support
Next steps
We will engage further with selected firms to understand the adequacy and effectiveness of their compliance resources and explore gaps in practice.
In the meantime, firms should use these findings to reflect on their arrangements and identify where improvement is needed.
Strong compliance supports better decisions, trusted markets and sustainable growth.