In this article we talk to Philip Naughton, a partner at ACA, the compliance consultancy and software group, about its recent and very successful merger with Cordium and about trends in the industry in general.

Q: How has ACA’s acquisition of Cordium gone?

A: It's gone very well. It’s been over 18 months now since ACA’s acquisition of Cordium was completed. The combined business now gives us in the UK over 50 compliance professionals and 400+ clients. There has been no notable staff attrition and we've lost no clients as a result of the acquisition. We now service an even wider range of firms from smaller asset managers to multi-billion firms in the hedge fund, private markets, wealth management and alternatives space.

Q: Did ACA's ComplianceAlpha absorb Cordium's Compliance ELF?

A: Yes. We released ComplianceAlpha 2.0 last October, which introduced an updated and expanded version of Compliance ELF, on which firms manage their employee personal trading monitoring and surveillance activities, to the platform. With regulators all over the world evolving their own technology to identify potential market abuse and other misconduct quickly, this helps the firms keep pace.

Q: What happened to platform Mirabella?

A: It's still part of the ACA group. Nine months ago we decided to sell or 'exit' it. We're a governance, risk and compliance (GRC) and technology firm, so why do we have a regulated entity in our midst? There are risks associated with having such an entity in a group like this.

That is not to say that it isn't of good quality. It's one of the best and most expensive – if not the most expensive – platforms in the marketplace. It has about 65-70 firms on it. I am sure that ACA and Mirabella will continue to work together for firms that need the services of both.

Q: How did you come to be in compliance?

A: This is my 31st year in UK compliance. I started in October 1989 at Irish Life. I then worked for four years at one of the regulators of the day – LAUTRO (the Life Assurance and Unit Trust Regulatory Organisation). Then I spent six years at National Australia Bank, ultimately as their head of regulatory policy, before going into retail compliance consultancy for 2 years and then joining the Hartford as their business conduct compliance manager. I joined what was known as IMS in May 2010 which has evolved to now become ACA Europe.

Q: With ever-more onerous regulations to obey, do you think that all financiers are marching inexorably towards a moment when they are all working for the Government?

A: No. In this game there's continual consolidation and release and consolidation and release. Regulation tightens and then seems to relax and so it continues. Mind you, it always ends up consolidating at a higher level than last time. Compliance isn't going away. Inevitably what has happened is that regulation builds on regulation. When I was at LAUTRO, the whole rulebook was three inches thick. Now, if you look at COBS and all other sourcebooks that are relevant to what would have been in old money a LAUTRO firm, it’s nearing 4 feet!

Q: Have you ever seen a bank cutting its compliance team needlessly?

A: I’m aware of a high street bank which very recently is looking to reduce its headcount by 25% across a number of business units including compliance. Simple as that – 25% of the compliance team must go. What does not appear to have taken place is that the business unit resizes and then an assessment is made of what size of skillset of team is required to then support those smaller business units. When a redundancy situation arises it can be the longer-term and skilled employees who put themselves forward for redundancy and a brain drain can occur.

I was told when in-house: "we don't need as many compliance people any more because we are now compliant." My response was: "but we are only compliant because we have the right people with the right skills and headcount!"

Q: What is the best way for a compliance function to operate at a private bank?

A: These days, compliance must work collaboratively with the business unit and my motto is that compliance should be "built in, but not built on." Compliance people have a lot of value they can add to a business both in terms of knowledge of the business itself and how risk can be efficiently and effectively managed.