Time for confession…

How can regulated companies benefit from self-reporting? The chief compliance officer of Sarwa considers the pros and cons.

Way back in 1738, a Dutch polymath called Daniel Bernoulli hypothesised that the expected value of any of our actions, that is the goodness that we can count on getting, is the product of two simple things: the odds that this action will allow us to gain something, and the value of that gain to us.

Theoretically, Bernoulli’s concept should give us the answer to how we should always behave. Except, it doesn’t. How human beings behave, and the predictability of human behavior remains complex and multifaceted. Even if we created an algorithm to help us decide the odds that our actions will have in gaining something and the value of that gain, the ethical and moral decisions or expectations often occur within certain cultural and environmental silos. This is why many of us are completely confused by what we think is so obviously right and wrong when others fail to share our views.

As compliance officers, the decisions that we make every day should have as our primary goal the limitation of risk and corporate liability. But more importantly, instilling a sense of individual accountability and morality is probably one of the more critical functions of the compliance role. One of the least favourite parts of my job, and I hope for many other compliance officers too, is playing the part of moral police. How then, do we try to use Bernoulli’s theory to create a culture of positive behavioural patterns?

One of the ways is to consider corporate self-reporting for regulated firms. When there is no legal requirement to report a wrongdoing to the regulator, the growing trend for firms that have good governance practices in place, is to self-report. The decision to self-report a wrongdoing is mostly a commercial decision for the company – balancing benefits and risks – but it is also an ethical decision. Even if reporting the wrongdoing results in no action from the regulator, would you take that step into territory of disclosure, knowing that you can’t take that step back? Reporting can have a serious impact on the economics and confidence of the company. But what if that impact was positive? What if the consequence of self-reporting a wrongdoing demonstrated that an organisation was willing to admit when something went wrong?

Such decisions are difficult and must be weighed carefully before self-reporting. Firms should be mindful that the information presented to the regulator has been thoroughly analysed and the appropriate steps taken if necessary. If a decision to self-report has been made, firms should also be careful not to give the perception that the wrongdoing has been suppressed and full disclosure has been made.

 As we move into the era of greater transparency and increased data-sharing, companies will be forced to face the complex question of whether to self-report. Authorities in the UK, the US and other jurisdictions are increasingly looking to incentivise companies to self-report by reducing penalties and fines. This does mean that companies who self-report will be fully absolved but it does mean that the company would have demonstrated a higher level of moral and ethical cultural practices. Perhaps Bernoulli was onto something after all!

Columnist: Ramitha Liddington, chief compliance officer, Sarwa Digital Wealth Limited