Tips for Handling Regulatory Examinations: #1 – Tone from the Top

It should come as no surprise that many compliance professionals, no matter how seasoned, find regulatory examinations to be daunting and at times even a little scary.

In our experience, we don’t typically hear that compliance officers enjoy the examination process or look forward to a regulator looking under the hood and shining a light on all the darkest areas of their firms. There’s often a sense they’re looking for something – or anything – to be wrong, even if you’re confident that your compliance program is sound. 

But there’s a secret to handling examinations that’s been staring at us for many years, and the team at Core Compliance & Legal Services, Inc. (“Core Compliance”) wants to take this opportunity to share it.

You’ve no doubt heard the expressions “the culture of compliance” and “tone from the top” many times.  But how can those concepts influence your firm’s regulatory examination success?

At its core, a regulatory exam is designed to assess your firm’s holistic approach to compliance – or “culture of compliance” – and how it is intertwined through all aspects of your firm’s business.  Of course, exams also involve extensive hands-on testing of your investment activities and business practices, but it all goes back to how effectively your firm has established a compliant environment.

Generally speaking, to best get a feel for your firm’s culture, a regulator will want to start at the top: speaking to senior management, typically the C-suite, and certain other functional leaders, is often the first interactive aspect of any exam.  In order to help you put your best foot forward in an exam scenario, following are some ideas on how a firm can effectively incorporate a strong culture of compliance from the top of the firm on down.

Setting the “Tone from the Top”

Senior management buy-in, or “tone from the top,” is an integral element to how a firm demonstrates its culture of compliance.  From there, members of senior management need to serve as the “messenger” of the compliance tone on a consistent basis throughout the firm’s existence.

          What is “Tone from the Top”?

Referencing one of our earlier articles, it refers to a uniform message about the significance of compliance from the head of the organization and, typically, this is carried out by the CEO, the Board of Directors, or the Managing Partners of a firm. This cohesive and calculated approach establishes the “tone at the top.”

At Core Compliance, our clients have seen success when senior management talks the talk and walks the walk. Showing the expected behaviors and protocols at a higher level helps ensure that the remaining staff will follow suit, largely because senior management has led by example.

It is critical that the CEO and managers also establish a narrative should the expected behavior be ignored. By establishing a protocol or procedure on appropriate actions and/or recourse mechanisms, employees will be more aware that non-compliance with policies and procedures, applicable regulations, ethics, and the firm’s undivided loyalty to clients will not be tolerated.

Without follow-through, there lacks a call to action and a firm would likely need to reinforce or revisit its ethical culture. Having consistent messaging trickle down from the top addresses the significant effort needed to have an effective compliance program.

Below are 3 tips to help establish your “Tone from the Top”:

  • Reinforce the Message. Executive leadership and senior managers should frequently encourage employees and business partners to behave ethically throughout regular internal communications, such as periodic meetings, a quarterly newsletter, or the Happy New Year message to your firm.
  • Recognize and Reaffirm Talent and Best Practices. Firms can create an internal reward system that highlights and promotes their talent based on their adherence to the firm’s ethical standards. Having senior management showcase compliance-forward behaviors will further enforce the importance of the message.
  • Add Compliance to the Conversation. Chief Compliance Officers are an invaluable asset in working with senior management to establish and communicate the culture of compliance. A CCO’s experience and knowledge should be leveraged during critical discussions within the firm. By giving compliance a seat at the table, there will be added insight regarding internal and external resources when it comes to implementing a robust culture of compliance.

In this ongoing blog post series, we’ll continue to uncover secrets to preparing your firm for a regulatory examination. While establishing a culture of compliance and a tone from the top cannot be accomplished overnight, having the foresight and understanding of its importance is a great place to start.

No matter the state of your compliance program or how well-established your culture of compliance may be, it always helps to get a knowledgeable outsider’s perspective.  The team at Core Compliance has extensive experience in advising firms on how to create and/or maintain strong cultures of compliance, as well as how to build effective compliance programs with our Outsourced Compliance Services.

For more information about the services at Core Compliance, please contact us at or call us at (619) 278-0020.