Compliance Program
A firm's internal system of policies, procedures, and controls designed to ensure adherence to applicable laws and regulations.
What is Compliance Program?
A compliance program is an organization's internal framework of policies, procedures, training, and controls designed to detect and prevent violations of applicable laws, regulations, and internal standards. In financial services, robust compliance programs are required by regulators including the SEC, FINRA, and banking agencies. A well-designed program typically includes: a designated compliance officer, written supervisory procedures, employee training, transaction monitoring systems, internal audits, and reporting mechanisms for potential violations. Failures in compliance programs can result in significant regulatory enforcement actions, fines, and reputational damage.
Example
Under SEC Rule 38a-1, every registered investment company (mutual fund) must adopt and implement a compliance program reasonably designed to prevent violations of federal securities laws, designate a chief compliance officer, and conduct annual reviews. A fund that fails to implement adequate procedures—such as allowing portfolio managers to trade ahead of client orders—may face SEC enforcement action.