AS BULLISH global markets start showing signs of growing bear fur, risk and compliance professionals should be looking more closely for “aberrant behaviour” as the lifestyles of commission-based employees are compromised, the president of the Australasian Compliance Institute (ACI) warned last month.
Presenting the plenary address at ACI’s 2008 Finance Sector Forum, president David Lawrence said: “Any business in which employees are remunerated on a commission basis may be particularly prone, at present, to aberrant behaviour.”
Lawrence, who is also general manager of participants at the ASX, said that the risk was not restricted to stockbrokers, and that the financial services industry was broadly vulnerable where employees are remunerated on a commission basis.
“We’ve had a substantial period of bullish markets,” Lawrence said. “This brings growth and expectations of lifestyle maintenance.”
The ACI president warned that “any part of your business in which an individual is exposed to a change as a result of a declining market is now at risk, because people may not be able to sustain the lifestyles and incomes to which they have become accustomed over the last ten years”.
Lawrence did not single out any group of officers or employees, but suggested that where bonuses or commissions were concerned, highly geared directors, company owners, CEOs, advisors or consultants were just as likely as one another to be exposed to lifestyle risk.
“Aberrant behaviour may manifest itself in excessive transactions to generate excessive commissions, churning or unauthorised activity,” Lawrence said. “This will be the major compliance risk to anyone who runs a commission-based business over the next 12–18 months.”
In times of economic downturn, Lawrence said, there is an increased need for good compliance executives. But, he warned, cost-cutting during periods of economic constraint or market downturn often compromised compliance professional staff numbers.
“In our view, this is a significant negative move, because it’s now that all those issues which [may have been overlooked] in the good times are going to come home to roost,” the ACI president said. “Client complaints are going to start increasing and you’ll need good compliance professionals to manage those and protect the board.”
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