Compliance Blog #6: External Compliance Officer – an underestimated strategic resource

In particular, fast-growing and medium-sized companies that have so far not established an independent compliance function but are increasingly exposed to regulatory requirements are increasingly faced with the question of whether, and in what form, a compliance function should be established. In such situations, an external compliance officer can be both a commercially sensible and, from a governance perspective, highly effective instrument – provided that the role of the external compliance officer is clearly defined, structurally embedded, and designed with liability considerations in mind.

1. Legal framework: no duty to appoint – but a duty to ensure effective organisation

There is generally no explicit statutory obligation under German law to appoint either an internal or external compliance officer. Regardless of this, management and the board of directors are subject to extensive duties of legality and organisational responsibility. These duties are rooted in corporate law requirements for proper management of the company, in the supervisory and organisational duties of corporate bodies, and in civil and criminal liability standards that depend on the existence or absence of effective organisational structures.

From a liability law perspective, the key reference points are in particular Section 130 of the German Administrative Offences Act (OWiG) (breach of supervisory duties), which may lead to fines against corporate bodies themselves in cases of inadequate organisational safeguards, as well as Section 30 OWiG (corporate fines) at the entity level. Relevant case law includes the Federal Court of Justice (BGH) decision of 17 July 2009 (5 StR 394/08) (“Berlin municipal utilities decision”) concerning the compliance officer’s duty of care, as well as the “Neubürger” decision of the Munich Regional Court I (5 HK O 1387/10) from 2013 on directors’ liability for an insufficient compliance organisation.

Standards and implementation requirements

Professional compliance management systems are based on the recognised audit and implementation standards IDW PS 980 and ISO 37301. For small and medium-sized enterprises, DIN SPEC 91524:2025-05 (“Guideline for compliance management systems in small and medium-sized enterprises”) provides a useful framework for orientation.

When implementing a compliance management system, what is decisive is not whether a particular function holder has been appointed, but whether the compliance organisation as a whole is capable of managing the company’s key legal and reputational risks.

Case law does not require any specific compliance model. However, it does require an appropriate compliance organisation tailored to the company’s risk profile.

The key factors in this regard are in particular:

• size and complexity of the company.
• industry and regulatory environment.
• international operations and corporate group structures.
• the specific risk situation, for example in the areas of anti-corruption, competition law, data protection, export control, IT and AI compliance, as well as
• ESG exposure across the value chain.

Against this background, engaging an external compliance officer can be an appropriate and efficient means of fulfilling organisational duties, particularly where internal expertise or personnel resources are lacking. However, the management’s organisational responsibility remains unaffected.

2. EinsatzfeldeAreas of application: when external expertise may be appropriate

The decision to appoint an external compliance officer must therefore be based on the company’s specific risk and organisational profile.

In practice, three typical scenarios can be distinguished, each placing different demands on the specific design of the role and its organisational integration:

Scenario 1 – Structural need: no internal compliance function in place

Medium-sized companies that have so far not established an independent compliance function but are increasingly exposed to regulatory requirements – for example due to the Whistleblower Protection Act (HinSchG), supply chain obligations under the German Supply Chain Due Diligence Act (LkSG), or the EU AI Act – face the question of whether, and in what form, a compliance function should be established. In such situations, the external compliance officer is not merely a transitional solution but, if appropriately structured, can represent a permanent and economically efficient compliance organisational model.

Scenario 2 – Situational need: internal function exists but is insufficient

An internal compliance function exists but reaches its limits in certain areas – whether in terms of expertise (e.g. AI compliance, export control, competition law), staffing (vacancies, illness, overload), or structure (internal role overlaps leading to a lack of independence). In such cases, external expertise can be engaged in a supplementary and temporary manner – however, with particularly careful role delineation.

Scenario 3 – Need in a crisis: acute governance or investigative requirements

Regulatory investigations, internal investigations of suspected cases within the framework of internal investigations, or significant regulatory changes can place such a strain on the existing compliance organisation that relevant issues can no longer be adequately addressed in parallel internally. In these situations, the external compliance officer is often the only option for covering advisory needs within the compliance function while ensuring both responsiveness and depth of expertise. The need is time-limited, but places particularly high demands on qualifications and organisational integration.

Decision criteria

The decision to appoint an external compliance officer is particularly appropriate when:

• the necessary expertise is not available internally or cannot be maintained on a permanent basis.
• functional independence cannot be credibly demonstrated internally (e.g. due to close personnel ties with the legal department or management).
• regulatory pressure requires a rapid response.
• the size of the company does not economically justify establishing an in-house compliance department, or
• a documentable external perspective may be strategically required with regard to directors’ and officers’ liability or credibility towards regulatory authorities.

However, the external appointment should be critically reviewed where it is intended primarily to serve as liability protection without meaningful organisational integration, or where there is no clear delineation of internal responsibilities.

Hybrid model as a practical solution

In practice, a hybrid model is often also suitable:

An internal function – for example as a part-time role or combined with a related governance function – provides the operational embedding within the company, whereas an external compliance officer contributes specialist expertise, independent reporting lines, and overarching governance oversight. However, this model requires particularly careful delineation of roles.

2. Delineation from internal functions: where external compliance begins and ends

The appointment of an external compliance officer does not automatically replace existing internal governance and control functions. Rather, a clear delineation from internal responsibilities is required in order to avoid overlaps, diffusion of accountability, and role conflicts.

In particular, the interfaces with the legal department, internal audit, risk management, HR, and operational business units must be clearly defined from an organisational perspective.

While the legal department typically provides legal advice, the external compliance officer regularly assumes an ongoing governance, management, and monitoring function within the compliance organisation.

Internal audit, by contrast, generally assesses ex post the effectiveness of internal control and governance systems. Combining both functions in one person entails significant potential for role conflicts and should be strictly avoided from a governance perspective.

Another common mistake is assigning external compliance officers a bundle of heterogeneous tasks without clearly delineating their respective roles. Without a clear separation between advisory, control, and operational execution functions, role conflicts arise, decision-making processes become inefficient, and responsibilities remain unclear in crisis situations.

4. Liability issues: Why outsourcing does not absolve from liability

In practice, it is often observed that companies misunderstand the appointment of an external compliance officer as a form of liability protection. The idea that outsourcing the function largely shifts responsibility for compliance to the appointed officer does not withstand legal scrutiny.

The management remains obliged to

• to carefully select the external compliance officer
• to define its scope of responsibili ties precisely
• to establish appropriate reporting lines and escalation pathways, as well as
• to continuously monitor their activities.

Faulty selection and implications for insurance coverage

In addition, management is liable not only for inadequate supervision but also for the improper selection of an external compliance officer (faulty selection). Appointing a person with insufficient professional qualifications or without the regulatory expertise relevant to the industry constitutes a breach of duty towards the company. At the same time, it should be noted that an inadequately structured external compliance function may jeopardise the D&O insurance coverage of corporate officers – an aspect that is often underestimated in practice.

From a liability law perspective, what is decisive is not the formal assignment or outsourcing of the function, but the actual effectiveness of the chosen organisational structure. A merely symbolic or insufficiently integrated external compliance function may constitute organisational fault and can even increase the risk of liability for corporate bodies.

An external compliance officer can only work effectively if they have direct access to senior management or the executive board, if their reporting lines are robustly designed, if they are involved early in strategically relevant projects, and if they are actually provided with the necessary information.

5. Practical recommendations: Designing an effective external compliance function

Before engaging an external compliance officer, companies should first analyse their specific risk and business profile and determine whether, and to what extent, external compliance expertise is actually required.

It is also essential to ensure clear organisational anchoring. The role of the external compliance officer should be set out in writing and defined clearly. This includes in particular:

• tasks, competences, and authorities.
• reporting obligations and escalation pathways.
• the integration into decision-making processes, as well as
• the interfaces with internal governance and control functions.

Particular attention should therefore also be paid to contract drafting: a general advisory mandate is usually not sufficient to meet the requirements of a robust organisational structure. The mandate agreement should set out in detail which tasks are to be performed, which information is to be made available, how reporting obligations are structured, and how conflicts of interest are to be handled.

In ongoing operations, regular evaluation of effectiveness is also essential. The work of the external compliance officer should be documented, assessed against defined objectives, and adapted to changing risk situations or regulatory developments.

6. Integrated advisory: viewing compliance, investigations, and governance together

The design of external compliance functions requires an organisational model that matches the company’s risk and business profile, clearly delineates internal responsibilities, and withstands legal liability requirements. It is precisely here that the difference between mere administrative support and strategic compliance advisory becomes apparent.

The Compliance, Internal Investigations and ESG department of Pragal Rechtsanwälte operates precisely at this interface.

Lawyer Kristina Konrad is a certified compliance officer (university certificate) and certified AI compliance officer (Bitkom) and has many years of in-house experience in legal, compliance, and corporate governance departments of large and medium-sized enterprises.

Their specialisation includes the design, implementation, and further development of compliance management systems, the management of complex organisational structures in regulated industries, the conduct of internal investigations, and the establishment of anti-corruption measures.

In addition, Dr Oliver Pragal, as a specialist lawyer in criminal law, brings experience in defending and advising companies in compliance crises, internal investigations, and regulatory proceedings.

In this way, governance experience, criminal law prevention and crisis perspectives, as well as ESG and AI compliance expertise are combined into an integrated advisory approach that takes into account entrepreneurial decision-making, efficiency, and economic viability.

7. Conclusion: A delegable function, but non-delegable organisational responsibility

An external compliance officer can be a highly effective tool for professional corporate organisation. It enables companies to access specialised expertise flexibly, establish independent control structures, and relieve internal resources in a targeted manner.

However, what is crucial is that external expertise is deployed in a targeted manner where internal structures reach their limits in terms of expertise, personnel, or organisation.

A key prerequisite remains robust integration into the company’s corporate governance framework. Outsourcing compliance without clearly defining responsibilities, interfaces, and oversight does not reduce existing risks but instead creates new ones.

A guiding principle remains: compliance tasks may be delegated, but the responsibility of corporate bodies for an effective organisational framework cannot be transferred.

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FAQ: Frequently Asked Questions about External Compliance Officers