Purpose This study aims to examine whether the FCA’s use of in-house compliance functions as a delivery tool for regulation reduces compliance risk and serves the public interest. Design/methodology/approach This study combines doctrinal analysis of the FCA’s systems and controls requirements with examination of selected enforcement decisions. Concepts from regulatory design and incentive-based regulation are used to interpret how expectations are articulated and how responsibility is distributed between firms and individuals. Findings The analysis suggests the presence of a design-enforcement gap. While firms are incentivised ex ante to establish compliance functions as indicators of sound governance, enforcement practice evaluates those functions ex post against indeterminate, outcome-oriented standards. This misalignment may weaken the logic of incentive-based regulation, encourage symbolic compliance and contribute to the individualisation of regulatory risk for compliance officers. Research limitations/implications This study is limited to qualitative analysis of selected enforcement decisions. Its contribution lies in identifying structural features of compliance-based regulation rather than measuring empirical outcomes. Practical implications This study proposes a structured way of assessing compliance functions, focusing on their actual performance. This paper sets out dimensions that could guide supervision and enforcement in a more predictable and preventative way. Originality/value This study links regulatory design, incentive structures and enforcement practice to explain structural weaknesses in the FCA’s current use of compliance functions and offers a framework that could be used by regulators and firms in the UK and beyond.
Kohalny et al. (Thu,) studied this question.