At a large regulated firm the boundary between finance and compliance is obvious: different teams, different reporting lines, different heads. At a small one it is wherever the last argument left it.
That ambiguity is the source of a surprising amount of difficulty — regulatory returns submitted without anyone checking the underlying judgements, client money reconciliations nobody has clearly owned, and finance teams absorbing compliance work by default because it arrived in their inbox.
This is about where the line should sit, and what each side needs from the other.
The Work That Sits in Both Places
Four areas routinely straddle the boundary, and each causes trouble when ownership is assumed rather than agreed.
Regulatory reporting. The numbers come from finance. The interpretation of what the return is asking, and whether the firm’s position is correctly characterised, is a regulatory judgement. A finance team submitting returns without compliance input is making regulatory decisions it may not realise it is making.
Regulatory capital. Calculating it is a finance exercise. Deciding whether the firm’s assessment of its own risks is adequate is not. Our guide to regulatory capital, ICARA and IFPR covers the mechanics; the point here is that the inputs are judgements someone has to own.
Client money. Reconciliations are performed by finance. The adequacy of the arrangements, and the response when a reconciliation does not reconcile, is an oversight question with its own rulebook.
Financial crime touchpoints. Finance sees payments, counterparties and flows. Where something looks wrong, the decision about what happens next belongs to the MLRO — but only if finance knows to escalate it.
Why It Drifts
Small regulated firms usually start with finance in place and compliance arriving later, often part-time. By the time the compliance function exists, the finance team has been doing a share of its work for a year, and nobody formally hands it back.
The drift is reinforced by capacity. A compliance officer engaged for two or three days a month is visibly busy, and a finance team that can produce something quickly will do so rather than wait. That is good colleagueship and poor governance, because the firm ends up with regulatory judgements being made by people who are not accountable for them.
It becomes visible in a file review, where the question is not who did the work but who owned the decision — and the honest answer is sometimes nobody.
Drawing the Line
The distinction that works in practice is between producing information and deciding what it means.
Finance produces: the numbers, the reconciliations, the data behind the returns, the underlying records. Compliance decides: whether the firm’s position meets its obligations, whether something requires notification, whether a pattern warrants escalation, and whether the controls around all of it are adequate.
Where that split is written down and agreed, the firm runs smoothly. Where it is not, both functions assume the other has it.
Three items are worth agreeing explicitly: who signs off a regulatory return and on what basis; what finance does when a reconciliation breaks; and what triggers an escalation from finance to the MLRO, in concrete terms rather than as a general principle.
What Finance Needs From Compliance
Finance teams at regulated firms are frequently under-served by their compliance function, and rarely say so.
They need to know which rules actually apply to what they are doing, in terms specific enough to act on. They need a route to ask a question and get an answer inside a useful timeframe. They need advance warning of regulatory change that affects reporting, rather than discovering it at submission. And they need someone to own the judgement calls, so that finance is not making them by omission.
Where a compliance arrangement is too thin to provide that, the cost lands on finance as rework and risk. It is a reasonable thing for a finance director to raise, and it is better raised as a resourcing question than absorbed quietly.
What Compliance Needs From Finance
The obligation runs both ways, and finance teams are not always as useful to compliance as they think.
Compliance needs records that would stand up to someone external reading them cold, which means reasoning written down rather than held in someone’s head. It needs to be told about changes before they happen — a new payment route, a new counterparty type, a new product — rather than finding out from the management accounts. And it needs escalation to be a habit rather than an exception.
The most common complaint we hear from compliance officers about finance teams is not competence. It is being told late.
Month End Is Where It Shows
The boundary is most visible in the close, because that is when both functions are under time pressure at once.
Regulatory returns frequently sit on the same deadline as the management accounts, drawing on the same people and the same underlying data. Where compliance input is needed to finalise a return, and the compliance holder is engaged for two days a month, the question of when those days fall becomes operationally important rather than administrative.
Firms that handle this well schedule the compliance days around the reporting calendar rather than at arbitrary intervals, and agree in advance what finance can sign off alone. Firms that do not end up either submitting without the input or missing the deadline, and both are avoidable.
It is worth raising at the point the compliance arrangement is scoped, because retrofitting a schedule to an engagement already agreed is considerably harder than specifying it at the outset.
Escalation in Practice
Most firms have an escalation route from finance to compliance written somewhere. Rather fewer have one that has been used, and an untested route is an assumption.
What makes it work is specificity. “Escalate anything unusual” produces nothing, because nobody in finance is confident what counts. A short list of concrete triggers — a payment to a jurisdiction the firm does not normally deal with, a counterparty that cannot be identified, a round-sum transaction with no commercial rationale, a customer whose activity does not match what was expected at onboarding — gives a finance team something it can actually apply.
The second element is a response the person escalating can see. Finance teams that raise something and hear nothing stop raising things, and the control quietly decays. A short acknowledgement recording what was done with it is enough, and it keeps the route alive.
What This Means for Hiring
The practical consequence is that regulated finance roles require a different profile from their commercial equivalents, and firms that hire on general finance experience alone discover the gap at the worst time.
A financial controller at a regulated firm needs to recognise when something is a regulatory question rather than an accounting one. That is a disposition as much as a knowledge base — the instinct to ask rather than to assume. Our pages on financial controllers for FCA-regulated firms and regulated versus commercial financial controllers cover what differs.
It also means the compliance side has to be properly resourced, because a finance team cannot compensate for a compliance function that is not there. Where a firm is relying on finance to cover the gap, the honest fix is on the other side of the line. FD Capital recruits the Compliance Oversight function at SMF16 recruitment and the money laundering function at SMF17 recruitment.
When One Person Holds Both Compliance Functions
At smaller firms the Compliance Oversight and MLRO functions are frequently held by the same individual. It is proportionate, the FCA accepts it, and it works — but it has a specific consequence for finance.
A single part-time holder covering both functions has finite capacity, and the finance team is one of several demands on it. Where that holder is under-scoped, finance feels it first, because finance generates the steadiest stream of questions.
It also concentrates risk. If that person resigns, the firm loses both functions at once and finance is left without anyone to escalate to while a successor is approved. FD Capital covers the combined arrangement, and the point at which it should be split, at fractional dual SMF16 and SMF17 recruitment.
A Short Exercise Worth Doing
List the regulatory outputs the firm produces across a year — returns, reconciliations, reports, attestations. Against each, write who produces it, who reviews it, and who owns the judgement in it.
Most small firms find two or three where the third column is blank or contested. Those are the items to resolve, and resolving them costs an hour rather than a remediation programme.
It is also a useful document to have when a supervisor asks how the firm divides responsibility between its finance and compliance functions, which is a question that gets asked more often than firms expect.
Where Accountancy Capital Fits
We recruit the qualified finance function at regulated firms — financial controllers, management accountants, regulatory reporting specialists and finance managers who understand the environment they are working in. See accountancy recruitment for FCA-regulated firms and regulatory reporting recruitment.
Where the gap is on the compliance side of the line rather than the finance side, FD Capital handles those appointments across permanent, fractional and interim arrangements.
Across the group
Finance one side of the line, compliance the other
Accountancy Capital recruits the finance function. FD Capital recruits the compliance functions it works alongside. Tell us where the gap is and we will point you at the right team.
About the author
Adrian Lawrence FCA
Adrian is the founder and Managing Director of the FD Capital Group. A Chartered Accountant and ICAEW Fellow, he became a finance director at 28 and has spent more than 25 years at C-suite level, including as finance director of a listed company and of a private equity backed management buy-out. Every search is run by our specialist team, with Adrian overseeing each mandate.
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Adrian Lawrence FCA is the founder of Accountancy Capital and a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW). He holds a BSc from Queen Mary College, University of London, and has over 25 years of experience as a Chartered Accountant and finance leader working with private, PE-backed and owner-managed businesses across the UK
He helps his clients achieve their growth and success goals by delivering value and results in areas such as Financial Modelling, Finance Raising, M&A, Due Diligence, cash flow management, and reporting. He is passionate about supporting SMEs and entrepreneurs with reliable and professional Chief Financial Officer or Finance Director services.