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18 January 2021 / article

AFM publishes guidance on improving the compliance function

Further to research carried out by the AFM in 2019/2020, the AFM has published some practical guidance for investment firms and managers of investment funds to assess and improve their compliance function. Parties are urged to assess the maturity level of their compliance function and where improvements can be made.

AFM Publishes Guidance On Improving The Compliance Function

The AFM has published a report 'Handvatten voor het verbeteren van de compliancefunctie' (in Dutch only - click here) with practical guidance (handvatten) for investment firms and managers of investment funds to improve the impact and organisation of their compliance function. The report was prepared further to research carried out by the AFM over the course of 2019/2020 and is intended to share guidance on how to assess and improve the effectiveness of the compliance function with those investment firms and managers of investment funds not included within the scope of the research project.

The report notes that the research found vulnerabilities in the compliance function of part of the research group and that in many situations there was room for improvement of the compliance function. The report describes in detail 5 levels of maturity of the compliance function in order to enable an investment firm or manager of an investment fund to self-assess its level: ad hoc, determined, developed, evaluated and optimised. Each level reflects a level of process control by the compliance function. Which level is appropriate is determined by the size and complexity of the company. A lower level of maturity entails a risk to the continued and sound functioning of the compliance function. In such a case, there is a risk that laws and regulations are not sufficiently complied with.

In the report, there is a clear call-for-action for all investment firms and managers of investment funds to assess the maturity level of their compliance function and determine where improvements can be made. For example, the AFM encourages (i) clearly documenting how tasks are to be performed in policies and procedures, (ii) to ensure that the persons performing the compliance function are sufficiently independent and (iii) involve the compliance function in strategic decision making.

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