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Edited by
Maria Krambia-Kapardis

Financial Compliance
Issues, Concerns
and Future Directions
Financial Compliance
 Maria Krambia-Kapardis
Editor

Financial Compliance
Issues, Concerns and Future Directions
Editor
Maria Krambia-Kapardis
Faculty of Management
and Economics
Cyprus University of Technology
Limassol, Cyprus

ISBN 978-3-030-14510-1 ISBN 978-3-030-14511-8 (eBook)

https://doi.org/10.1007/978-3-030-14511-8

Library of Congress Control Number: 2019932965

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
Nature Switzerland AG 2019
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction
on microfilms or in any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this
publication does not imply, even in the absence of a specific statement, that such names are
exempt from the relevant protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and
information in this book are believed to be true and accurate at the date of publication.
Neither the publisher nor the authors or the editors give a warranty, express or implied,
with respect to the material contained herein or for any errors or omissions that may have
been made. The publisher remains neutral with regard to jurisdictional claims in published
maps and institutional affiliations.

This Palgrave Macmillan imprint is published by the registered company Springer Nature
Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
 To my husband Andreas,
Our children Elena and Konstandinos-Raphael,
And my parents
For all their love and support
 Acknowledgements

In June 2018, an International Conference on Compliance was held at

Cyprus University of Technology, in the coastal town of Limassol. The
speakers came from the USA, Australia, UK, France, and Cyprus. The
aim of the conference was to raise awareness and build capacity for those
working as compliance officers in the financial sector. The venue proved
to be too small, and the issues discussed raised the need for a compre-
hensive book to be published to assist practitioners, researchers, and
students who wished to practice as financial compliance officers. Thus,
I take this opportunity to thank the sponsors of the conference, namely:
PwC Cyprus; OPAP Cyprus; Map S. Platis; Y Georgiades and Associates
LLC; Zygos; Omnimedia; and Legal News.
In assembling, editing and fine-tuning this volume, I feel immense
gratitude toward a number of people for their contribution, support, and
presence.
Firstly, I would like to thank all the chapter contributors/authors for
their enthusiasm, patience, and support. Secondly, I would like to thank
the editorial team at Palgrave Macmillan and in particular Ruth Noble
and Tula Weis for their trust and continuing support throughout the
journey. Without their support and hard work, this would not have been
possible.
Thirdly, I would like to thank my family—my husband, Andreas, and
our children, Elena and Konstandinos-Raphael, who encouraged me
with their words of wisdom and empathy to pursue the idea of editing
the book but, also, to stop, look, and enjoy life with compassion and

vii
viii    Acknowledgements

gratitude, while doing it. Finally, I am indebted to my parents Takis and

Eleni who, despite the hardships of war and migration, worked hard
to ensure that both my brother and myself had a good education and
equipped us with resilience in life.
 Contents

1 Understanding Compliance with Laws and Regulations:

A Mechanism-Based Approach 1
Anthony Bottoms

2 Legitimacy and Regulatory Compliance 47

Justice Tankebe

3 The Uncertain Professional Status of Compliance 67

James A. Fanto

4 Compliance: From Soft Law to Hard Law—A View

from France 89
Maria Lancri

5 Living with the New General Data Protection

Regulation (GDPR) 113
Mark Foulsham

6 Risk-Based Financial Regulation and Compliance

Officer Liability 137
Stuart Bazley

ix
x    Contents

7 Whistleblowing: The Neglected Facilitator of Compliance 169

Eva Tsahuridu

8 The Skillset of an Effective Compliance Officer 187

Maria Krambia-Kapardis

9 Disentangling the Expectation Gap for Compliance

Officers 205
Maria Krambia-Kapardis, Salomi Dimitriou
and Ioanna Stylianou

Conclusion 269

Index 273
 Notes on Contributors

Stuart Bazley is Visiting Professor in Financial Regulation and

Compliance Law at BPP University Law School, London, where he is
co-leader of an LL.M. programme in financial regulation and compliance
law and programme leader for an LL.M. in commercial law.
Anthony Bottoms is Emeritus Wolfson Professor of Criminology in the
University of Cambridge and Honorary Professor of Criminology in the
University of Sheffield.
Salomi Dimitriou is a Lecturer in Accounting at the University of
Central Lancashire and a Special Scientist at Cyprus University of
Technology.
James A. Fanto is the Gerald Baylin Professor of Law at Brooklyn Law
School and Co-Director of the school’s Center for the Study of Business
Law & Regulation.
Mark Foulsham is a CEO and Founder of Keyenable Ltd.
Maria Krambia-Kapardis is an Associate Professor of Accounting, Cyprus
University of Technology, a Fellow Member of the Chartered Accountants
of Australia and New Zealand and a Certified Fraud Examiner.
Maria Lancri is a French lawyer practicing as a Counsel with GGV
Avocats à la Cour—Rechtsanwälte since 2015.

xi
xii    Notes on Contributors

Ioanna Stylianou is a Lecturer in Statistics and Econometrics at the

University of Central Lancashire Cyprus (UCLan) and Research Fellow
at the University of Cyprus. She is the Course Leader for the Economics
and Business Administration division at the University of Central
Lancashire Cyprus.
Justice Tankebe is a University Lecturer in Criminology and a Fellow at
St. Edmund’s College, University of Cambridge.
Eva Tsahuridu is an Associate Professor and Industry Fellow at the
School of Accounting, RMIT University, Melbourne, Australia.
 List of Figures

Chapter 1
Fig. 1 A mechanism-based typology of legal compliance
(Source Author) 8
Fig. 2 The Nielsen–Parker holistic compliance model (Source Nielsen
and Parker [2012, p. 448], as modified in Parker and Nielsen
[2017, p. 220]) 30

Chapter 9
Fig. 1 The structure of the expectation gap. Source Adapted
from Porter (1988) 215
Fig. 2 The expectation gap. Source Adapted from Porter (1988) 242

xiii
 List of Tables

Chapter 1
Table 1 Tax payment rates by late-paying individuals, one month
after receiving differently-worded reminder letters 19

Chapter 9
Table 1 Respondents’ details 216
Table 2 Contribution of responsibilities to components of the COs
expectation–performance gap 218
Table 3 Duties expected of CO by the relevant regulations 236
Table 4 Duties as derived by legislation, ICA, and literature included
in the questionnaire 245
Table 5 Responsibilities interest groups consider to be cost-beneficial
and expected by board and management 249
Table 6 Existing duties performed by CO 256
Table 7 Duties expected of CO by regulations 258

xv
 Introduction

Much has been written in recent years about human behavior and the
tendency to avoid or bypass regulations and good behavior. At the same
time, governments all around the globe have enacted legislation to pre-
vent and punish those who do not comply. In legal entities like corpora-
tions where there are diverse culture and behavior, it has been difficult
for regulators to ensure legislation is enforced and complied with. Thus,
they have opted to pass the onus onto compliance departments, new
entities appointed or set up, whose role is to ensure legislation is com-
plied with. Such a task has many challenges and, at the same time,
opportunities for those involved.
The current book aims to set the scene for the financial compliance
in an effort to minimize the personal risks faced by those in compliance
departments by raising awareness on the issues impacting on their work,
discussing the concerns and suggesting policy implications that will turn
the challenges into opportunity to improve their work. Unlike other
books on compliance, the current book focuses in the first two chapters
on what is described as compliance ‘as viewed from below’; that is to
say, a ground-level look at how compliance occurs. The chapters that fol-
low are mostly concerned with how those who have a responsibility to
enforce laws and regulations can achieve their ends with optimum effi-
ciency and effectiveness—an approach that can reasonably be described
as compliance ‘as viewed from above’. As Professor Sir Anthony Bottoms
explains in Chapter 1, these two types of analysis are in principle inter-
connected because an enhanced understanding of ‘compliance from

xvii
xviii    Introduction

below’ (how and why compliance occurs) should enable enforcement

agents to develop more sophisticated and effective compliance strategies.
Generally, all professions and, more specifically, professionals, for
their work to be appreciated and relied upon it, ought to be legiti-
mate. In setting the theoretical framework for the profession, legit-
imacy theory is considered as a milestone for the work carried out by
compliance officers. In Chapter 1, Professor Bottoms sets the concep-
tual groundwork for later contributions in the book by exploring and
categorizing the reasons why people comply with laws and regula-
tions. He first explains the mechanism-based approach utilizing lessons
from criminology and sociology and then moves on to discuss a typol-
ogy of compliance mechanism based on instrumental, normative, sit-
uational compliance, and compliance based on habit or routine. Next,
Sir Anthony discusses the Nielsen–Parker holistic compliance model
and its three explanatory variables. In considering each set of var-
iables separately, he compares them with his ‘Typology of Compliance
Mechanisms.’
Building on the conceptual groundwork of Chapter 1, Dr. Tankebe
in Chapter 2 explores the role of legitimacy as a mechanism for compli-
ance. As he argues convincingly, legitimacy is best viewed as a continu-
ous dialogue; building and sustaining legitimacy requires the lawful, fair,
and effective use of authority in everyday decisions. Tankebe reviews the
literature and explains that research evidence makes it clear that legiti-
macy matters when it comes to encouraging compliance with laws and
regulations.
Professor Fanto, in Chapter 3 of the book, explores the background
and reasons for the uncertain professional status of the ‘young’ compli-
ance occupation and identifies several negative effects or consequences
of the compliance officer’s uncertain professional status. The chapter also
covers the oxymoron control over compliance officers by legal authorities
and practitioners where it is sometimes passive or complacent.
In Chapter 4, Mrs. Lancri discusses the fact that compliance is a mind-
set and both hard and soft laws have a major role to play in ensuring
the work of the compliance officer is carried out efficiently. The case of
France is also discussed, and reference is made to the Sapin II legislation.
Protection of personal data is a topic that has raised a lot of discus-
sion in the second decade of the twenty-first century and brought out
of the shadow a concern for many citizens. Mr. Foulsham, in Chapter 5,
discusses the General Data Protection Regulation and highlights the
 Introduction    xix

realities of adopting the regulation and as he navigates his way through

the essence of the regulation also considers how high-profile failures may
have a dramatic impact on business success.
Professor Bazley in Chapter 6 considers aspects of the UK financial
services law and regulation that require governance of risk and the main-
tenance of an internal compliance function. First, the chapter examines
a number of key components of the law and financial services regulatory
regime that require financial institutions to establish internal governance
arrangements and systems of control devoted to the identification, con-
trol, and management of risk in financial services. He then provides an
insight into the evolving nature of ‘compliance,’ the characteristics and
responsibilities of a firm’s compliance function, its positioning within a
firm’s overall control environment, and the extent to which a compli-
ance officer and those working in a compliance function (including those
working as a money laundering reporting officer) are accountable for
their professional activities. Finally, Professor Bazley discusses the issue of
personal liability, when things go wrong.
An issue many compliance officers are concerned with is their legal
obligation and protection if they blow the whistle. Associate Professor
Tsahuridu, in Chapter 7, discusses the issue of whistle-blowing and its
effective management, exploring the role that effective management of
whistle-blowing can play in ensuring organizations to comply with their
legal and ethical obligations well as the incidence and reasons of inaction
and silence by observers when misconduct exists.
In Chapter 8, I build on the work of Kristy Grant-Hart and discuss
the skills required by the compliance officer in an effort to be effective in
carrying out his/her duties. I acknowledge that the compliance officer
is not an island and the success of his/her work depends on the Board’s
political will to provide the necessary resources to the compliance depart-
ment to enable it to thrive and flourish.
As illustrated in some chapters, the compliance occupation is ‘young’
and the expectations imposed by the regulators and other stakehold-
ers may at times be unreasonable. The authors of Chapter 9, Krambia-
Kapardis, Dimitriou, and Stylianou, first contextualize the compliance
program and the impact of non-compliance and then, utilizing Porter’s
theoretical model of the expectation gap, report findings from an empir-
ical survey of compliance officers in Cyprus. The issues raised by these
authors have implications for the future of the ‘young’ occupation and
the development of the compliance profession.
xx    Introduction

This edited book with contributions from Europe, USA, and Australia
is unique for it brings together both practitioners and academics to discuss
and elucidate the issues, concerns, and future directions of the financial
compliance profession.

Maria Krambia-Kapardis
12 A. BOTTOMS

likely social consequences to them of a criminal conviction, including

social stigma and shame. These wider normative consequences therefore
constituted a powerful disincentive to cheating on one’s tax liability.

‘Creative Compliance’
We now turn to the third sub-type of instrumental compliance, ‘crea-
tive compliance’16 (see Fig. 1). This sub-type is perhaps of special inter-
est in the context of this volume, because creative compliance has been
identified as occurring especially in relation to regulation in the field of
business, notably in financial services. Indeed, it has been described by
Doreen McBarnet (2013, p. 71) as ‘the dominant culture of compliance
in business, and …among those “high net worth” individuals with the
resources and power to manage law to suit their own purposes’ (empha-
sis added). McBarnet’s telling analysis of the character of creative compli-
ance deserves extensive quotation:

Rather than simply accepting and meeting the substantive obligations

imposed by law, those opting for creative compliance focus on ways of
arguably complying with the technical drafting of the law, while simultane-
ously frustrating its purpose.17 Practices may well be adjusted, but they will
be adjusted technically rather than substantively, so that the same practice
continues substantively…repackaged into another legal form. (pp. 71–72)

She describes this kind of activity as ‘legal engineering’ and adds:

Legal engineers know that they are not following the intentions or spirit
of the law. Bankers and banking lawyers talk in interview about their legal
practices as ‘bullish’ or ‘sailing close to the wind’ ….. In the mindset that
underlies and fosters legal engineering, all the responsibility for control is
placed on the regulators. If they can’t make regulations ‘legal engineer-
ing-proof’, or spot the failings in the schemes, it is fair game to exploit
that situation. Ideas such as responsibility, the public good, morality, ethics
or integrity do not enter into the equation. (p. 86)

In short, then, creative compliance can be described as a response that

is technically compliant, but with the intention of being as non-compliant
as the relevant law allows. As such, it clearly merits identification as a sep-
arate sub-type under the heading of instrumental compliance. We should
also note the severe challenge to regulators that is posed by this kind of
activity. Those engaging in creative compliance frequently have available
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