This study aims to examine whether the FCA’s use of in-house compliance functions as a delivery tool for regulation reduces compliance risk and serves the public interest.
This study combines doctrinal analysis of the FCA’s systems and controls requirements with examination of selected enforcement decisions. Concepts from regulatory design and incentive-based regulation are used to interpret how expectations are articulated and how responsibility is distributed between firms and individuals.
The analysis suggests the presence of a design-enforcement gap. While firms are incentivised ex ante to establish compliance functions as indicators of sound governance, enforcement practice evaluates those functions ex post against indeterminate, outcome-oriented standards. This misalignment may weaken the logic of incentive-based regulation, encourage symbolic compliance and contribute to the individualisation of regulatory risk for compliance officers.
This study is limited to qualitative analysis of selected enforcement decisions. Its contribution lies in identifying structural features of compliance-based regulation rather than measuring empirical outcomes.
This study proposes a structured way of assessing compliance functions, focusing on their actual performance. This paper sets out dimensions that could guide supervision and enforcement in a more predictable and preventative way.
This study links regulatory design, incentive structures and enforcement practice to explain structural weaknesses in the FCA’s current use of compliance functions and offers a framework that could be used by regulators and firms in the UK and beyond.
