Compliance Officer: The Role, the Reporting Line and the Liability

A listed company's compliance officer is the named individual answerable for whether the company meets its continuing obligations to the exchange and the regulator. The appointment is formal, the reporting line runs to the board rather than through the business, and the role carries personal liability that a general management role does not. The duties themselves are set out in the listing obligations issued by the Securities and Exchange Board of India (SEBI), at sebi.gov.in.

Walk into any small restaurant in an Indian town and look at the wall behind the till. Somewhere on it, in a plastic frame nobody has dusted in a year, there is a licence. On that licence there is a name. Not the name painted on the board outside. The board carries the restaurant's name. The licence carries a person's. If somebody arrives with a complaint about the kitchen, the conversation does not begin with the building or with the signage. The conversation begins with whoever that name belongs to, and that person cannot answer by pointing at the wall.

A duty that ends at a named human being rather than at an institution is the whole arrangement, and a listed company runs the same one at a far larger scale. A company that has listed its shares picks up a long standing set of duties on the day it lists, and one person, by name, is where those duties come back to. Everything else about the role, the way the appointment is made, the person it reports to, the strange insistence on writing things down on the day they happen, falls out of that one fact and makes very little sense without it.

The role is an Indian one. Indian securities regulation creates it, and the bodies named further down issue the requirements that give it its shape. Another market's regulator would create a role of its own, resting on its own reasoning, and the two would not be interchangeable.

The case running through everything below is one company. Vindhya Ceramics Private Limited, an invented manufacturer, listed its shares a year ago after raising Rs 25,00,00,000 in equity at Rs 100 per share. The raise put 25,00,000 shares into the hands of 12,060 holders on the register at allotment. The raise is finished. The duties that replaced it run for as long as the shares stay listed. Prerna Wadekar is the company secretary and compliance officer who carries it, and Ratnakar Deshpande is the finance director.

What does a listed company's compliance officer actually do?

Ask ten people and ten versions of the same vague answer come back: the compliance officerThe named individual answerable for a listed company's continuing obligations. makes sure the company follows the rules. The answer is true in the way that saying a doctor makes sure a patient stays healthy is true. Both sentences give the direction without giving the job.

The job has four parts, and they are worth separating because only one of them is difficult. The first is knowing which duties the company carries. The second is seeing that each of them is actually met. In practice that means running a calendar and chasing people who are busy with other things. The third is being able to show afterwards that it was met. Showing it means keeping a record rather than a memory. The fourth part is the one that makes this a judgement job rather than an administrative one: when something happens at the company, deciding whether it carries a duty at all.

A housing society already runs a small version of this. One member holds the file: the lift inspection, the fire equipment certificate, the water test, the audited accounts. The member holding the file does not operate the lift, does not choose the contractor and does not decide the maintenance charge. The member knows which certificates exist, knows when each one comes round again, and can produce the file when somebody asks. The difference at a listed company is the fourth part. Nobody in the society ever has to decide whether a particular incident is the sort of thing that has to be told to somebody outside.

Everything the role is not answerable for matters as much. The officer does not decide whether the company should sign the contract, open the plant or borrow the money. Signing, opening and borrowing are the board's decisions and the business's decisions. The officer decides whether the fact of them has to reach the market, and by which route. Keeping those two things apart is the single most useful distinction in this subject area, and a company that blurs them produces the failure described below.

Who appoints the officer, and why does the name get filed?

The appointment is not an internal understanding. The appointment is a formal act: the board resolves to appoint a named person to the role, the resolution is minuted, and the name travels outward from the company through its filings so that the exchange and the regulator know whose name it is. At Vindhya Ceramics Private Limited that person is Prerna Wadekar, who carries two roles on one pair of shoulders. The second of the two is that of company secretaryA statutory role under company law, which at many listed companies is held by the same person who carries the compliance officer duties.. Holding both roles is ordinary. The company secretary role sits under company law, issued by the Ministry of Corporate Affairs at mca.gov.in. The compliance officer duties for a listed company sit under the SEBI listing obligations at sebi.gov.in. Two rulebooks, two sets of duties, frequently one person.

The reason the appointment is formal, rather than a line in somebody's job description, is that an informal arrangement cannot carry a duty that ends at a person. Think about what would have to happen otherwise. Something goes wrong, somebody outside the company asks who was answerable for it, and the company answers that Prerna generally handles that sort of thing. A general handling is not an answer anybody can act on, and more importantly it is not an answer Prerna Wadekar herself can rely on when the arrangement is being read against her. Formality here protects the person as much as it identifies them.

What does the role carry that no other job in the company carries?

Everything else in the role hangs from one sentence. The role carries personal liabilityConsequences attaching to the individual holding a role rather than only to the company that employs them.: consequences of a failure can reach the individual by name, and the company cannot absorb them on her behalf.

The second half of that sentence is the part people skip. Take a moment over it. Plenty of jobs carry consequences. A general manager who mishandles a plant loses standing, loses the increment, possibly loses the job. But every one of those consequences is administered by the company. The company decides how much of it to apply. The company is the one holding the pen. When a consequence is addressed to an individual from the outside, the company is no longer holding the pen. The company can be sympathetic, it can pay for the advice, it can keep her on. The one move it cannot make is to stand in the way and take delivery on her behalf.

An Indian household knows this shape well. When a cousin borrows and a relative stands surety, the loan is the cousin's, the money went to the cousin, and the cousin made every decision about it. None of that changes the fact that the letter, when it comes, has the surety's name on the envelope. The cousin cannot take the envelope back by explaining that it was his loan. Standing surety is a personal position, and so is this one.

Two more properties follow, and both matter to anybody who holds this role. The exposure does not end when the job ends: a consequence attached to a period during which she held the role does not go away because she has since moved on. And the exposure is not sized by seniority. The exposure attaches to the role, so a company that appoints somebody junior has not created a smaller exposure. The company has placed the same exposure on somebody with less standing to do anything about it.

Why does the reporting line run to the board rather than through the business?

Consider the reporting lineWho a person answers to inside an organisation, which decides whose judgement their pay and their continuation depend on.. The reporting line sounds like organisational furniture, and the reporting line decides whether the role can work at all.

Picture a quality inspector on a factory floor whose job is to reject output that is not good enough. Now make that inspector report to the production manager, whose bonus depends on how much output ships this month. Nobody in that arrangement has to be dishonest for it to go wrong. The inspector simply learns, over a few months and without anybody saying anything, which rejections are worth the conversation and which are not. The arrangement does the damage on its own.

The compliance officer sits in exactly that geometry, with one extra feature that makes it worse. The trouble is not only that raising a costly question is unpleasant. The officer is the one personally exposed to the outcome either way. The person whose decision created the exposure carries none of it personally. An officer whose increment, appraisal and continuation are held by the people whose decisions expose her is being asked to be inconvenient to her own appraiser about a risk that is hers alone.

So the line runs upward, to the board, rather than sideways into the business. In practice that means the officer has a route to the board and to its committees that does not pass through the business unit whose decision is in question, and it means her position is not in the gift of the people she may have to disagree with. Exactly where that line terminates, how it is worded and what access it carries is set out in the SEBI listing obligations at sebi.gov.in and is read there, not here.

What does that liability make the officer do every working day?

Once the liability is accepted, the daily habits of the role stop looking like bureaucracy and start looking like the only sensible response to the position she is in. Three of them are worth naming.

The first is that everything is dated. Not dated afterwards, when somebody assembles a bundle for a query, but dated on the day. A contemporaneous recordA record made at the time an event or a judgement happened, rather than reconstructed later. is the only kind that evidences a judgement, and the reason is not legal pedantry. A note written later can only record what somebody now believes they thought. A note written on the day records what was actually in front of them. Faking or misremembering that is far harder.

The clearest everyday version of this is a doctor's case sheet. A doctor writes down what the patient presented with, what was ruled out, what was considered, and what was decided. Two years later, when somebody asks whether the treatment was reasonable, nobody learns anything useful from the doctor's memory. The notes are what they read. The prescription already gives the conclusion, so the interesting part of the notes is never the conclusion. The interesting part is the working: the alternatives that were weighed and set aside.

Two years later nobody asks what the company concluded. The conclusion is already public in whatever the company filed. The question is what the officer considered before concluding, and only a dated record answers it.

The second habit is the register. Prerna Wadekar keeps one register of every disclosure the company made, with the date, the trigger, the route it travelled and the person who approved it. One row per disclosure. The register is not glamorous, and the register is the single most valuable object she maintains: a year of scattered decisions becomes something a person can be handed.

The third is escalationTaking a matter above the level at which it arose, so that it is decided by somebody with the standing to decide it. as a reflex rather than a last resort. A judgement she makes alone and never raises is a judgement she is alone with. A judgement she forms, records and takes upward becomes a judgement the company made with her working in front of it.

What did one year at Vindhya Ceramics Private Limited actually contain?

Prerna Wadekar's register for the year has 31 rows, one per disclosure. Set out as she keeps it, the year looks like this.

Check the arithmetic yourself, because the shape of the year is in it. The board met 7 times and each meeting produced an outcome with its own duty attached, so 7 rows are board outcomes. The 7 board outcomes sit inside the routine 25 rather than beside them, and the reason is visible in the table: there were only 6 material events in the whole year, fewer than the 7 board meetings, so board outcomes cannot be sitting in the material column. Subtracting them leaves 18 other routine rows. Then 7 plus 18 is 25, and 4 plus 2 is 6, and 25 plus 6 is 31.

The number that matters is not 31 and not 25. It is 2. Twenty five rows were execution: something came round on the calendar, it was prepared, it was checked, it went out by the route it goes by, and it was entered in the register. Four more were events so plainly of the kind that carries a duty that nobody in the building would have argued. All 29 of those needed care, and none of them needed judgement. The other two are the job.

Take the harder of the two. A customer contract came to an end. The ending is a fact, it is not in dispute, and it did not arrive with a label attached telling anybody what to do about it. Whether the ending of that particular contract is a material eventAn event carrying a disclosure duty because of what it would mean to somebody reading about the company. for this company is exactly the kind of question the rules make somebody decide, and it has no general answer. The answer depends on this company, this contract and this moment. A person is appointed to decide it precisely because no formula could be published to settle it.

Prerna Wadekar handled it in three moves, and the three moves are the whole role. She formed a view. She recorded the view on the day, with the reasons under it and the things she had weighed and set aside. And she took it to the board rather than settling it on her own. A view she never raised is a view she alone stands behind, so skipping the third move would have left the first two undefended.

What happens when the officer and the business disagree?

Sooner or later she forms a view the business does not share. The business has a negotiation running, or a customer who will read it badly, or a genuine belief that the thing is smaller than she thinks. A disagreement is not a breakdown. A disagreement is the arrangement working, and a company where the officer has never once disagreed with anybody has either had an unusually simple year or an officer nobody is asking.

The disagreement travels a route, and the route exists so that she is not the last stop. She raises it, in writing, with the person whose decision it is. A record showing only her view is a record of a complaint rather than of a question, so both positions get recorded, hers and theirs, with the reasons on each side. The disagreement goes upward along the line that exists for exactly this. And whatever comes back, including the answer that nothing was resolved, is recorded too.

The record of a disagreement protects the business at least as much as it protects the officer. Only the record shows later that the question was actually considered rather than never noticed. A company that reached a defensible view after weighing both sides is in a completely different position from a company where nobody ever raised the point, and only the record can tell those two situations apart. The instinct inside a company is to treat a recorded disagreement as a stain, when a recorded disagreement is closer to a receipt. Somebody should say so out loud.

What can the compliance officer not do?

The limits of the role are overestimated far more often than they are underestimated, so they are worth stating bluntly. The role is not a veto over the business. She cannot stop a contract being signed, cannot instruct the board, and cannot substitute her own judgement for the board's on a matter that is the board's to decide. No hand goes up anywhere in this arrangement to halt the company. A role carrying that power would sit above the board on decisions the board alone answers for.

She also cannot manufacture the past. A note written three months later, however honest, is a record of a recollection and not a record of a judgement, and everybody who reads records for a living knows the difference on sight. Nor can she be the company's entire memory. The duty belongs to the company. Her answerability runs only to whether the duty was met, and that is a narrower thing.

Her complete list of powers is short: form a view, record it on the day, raise it with the people whose decision it is, escalate it along the line that exists, and record what happened next. A view formed, recorded and escalated changes what the company can later say about itself, so the list is a real set of powers and not a consolation prize. The list is just not a veto, and a person taking this role expecting one will be disappointed in a way that matters, given what they are carrying.

What goes wrong when the role is made administrative?

Is this the same role as a compliance officer inside a registered intermediary?

Same two words on the visiting card, different job. The two are worth separating: the title travels, and assumptions travel with it.

A listed company's compliance officer answers for whether that company, as an issuer whose shares are listed, met its continuing obligations. The triggers are events at the company and the calendar a listed issuer runs on, and the audience is the exchange, the regulator and everybody holding the shares. A registered intermediary is a firm registered to do something for clients. Its compliance officer answers for whether the firm complies with the conditions of its own registration and the conduct rules for the work it does. Different triggers, a different audience and a different rulebook. The second role is set out under the compliance function, and the two statuses themselves are compared under listed entity versus intermediary.

Who outside the company actually uses any of this?

Four people, and each of them uses it differently. Watching the four uses is the fastest way to see why the arrangement is built the way it is.

Start with a household holding 40 shares of Vindhya Ceramics Private Limited out of the 25,00,000 in issue, one of the 12,060 names on the register. When something goes wrong, a payment that did not arrive, a document that never came, the single most valuable thing the arrangement produces for that household is a name. Not a call centre and not an email address at a company that has 12,060 holders and no obligation to any of them in particular, but a person who has been formally put forward as the one to write to. Whether that contact point is required, and how the requirement is worded, is read at sebi.gov.in rather than stated here.

A lender's documentation officer uses it differently. When a bank needs a certificate from a listed borrower, somebody has to sign it, and it matters a great deal whether the signature belongs to a person with standing and a line to the board or to somebody who signs what they are handed. The same signature carries different weight depending on the structure behind the person producing it. A lender therefore cares about a company's compliance arrangement for an entirely practical reason.

An analyst covering the company uses it as a texture. Interpreting what a disclosure says is a separate skill. The analyst's use here is simpler: noticing whether the company treats the function as real, whether it is named, whether the person is senior, whether the line goes where it should. The observation is about the company's arrangement, not about its numbers.

And the fourth is the person considering the job. The structure makes certain questions important, and they are not the ones a candidate usually asks. Whom does the line run to. Do the papers arrive before the decision or after it. Is there a route to the board that does not pass through the person whose decision is in question. In most jobs those are second order questions about working conditions. In this one, given what is attached to the appointment, they are the terms.

Where are the requirements for this role read?

Everything above is the shape of the role and the reason it has that shape. None of it is a requirement. Periods, thresholds and consequences are precisely the items that move while a reference work stands still, and a reader who takes one from a summary rather than from the source has learned something with an expiry date on it. The structure does not expire: the appointment, the line, the liability and the record.

Vindhya Ceramics Private Limited, Prerna Wadekar and Ratnakar Deshpande are invented.
Educational material. Not advice on any investment, tax, budget or market position.