Compliance is either a state of being in accordance with some established guidelines, specifications or legislation or the process of becoming so. In easier words, the term compliance describes the ability of an organisation to follow a set of rules or request.
Compliance operates at two levels:
Level 1
Compliance with the external rules that are imposed upon an organisation as a whole.
Level 2
Compliance with internal systems of control that are imposed to achieve compliance with the externally imposed rules. Regulatory compliance describes the goal that organisations aspire to achieve in their efforts to ensure that they are aware of and take steps to comply with relevant laws, policies, and regulations. The term ‘regulation’ generally refers to a set of binding rules issued by a private or public body with the necessary authority to supervise compliance with them and apply sanctions in response to any violation of them.
Compliance Governance
Compliance governance refers to the set of procedures, methodologies, and technologies put in place by a corporation to carry out, monitor, and manage compliance.
Importance of compliance governance
It is important because there is increasing regulatory pressure on companies to meet a variety of policies and laws. This increase has been, to a large extent, fuelled by high-profile bankruptcy cases or safety mishaps. Failing to meet these regulations means safety risks, hefty penalties, loss of reputation, or even bankruptcy.
The Complexity of Compliance Governance
Compliance governance is a complex problem because each corporation has to face a large set of compliance requirements in the various business segments, from how internal IT is managed to how personnel is trained, how product safety is ensured, or how and how promptly information is communicated to shareholders. Furthermore, rules are sometimes vague and informally specified. As a result, compliance governance requires understanding and interpreting requirements while implementing and managing a large number of control actions on a variety of procedures across the business units of a company. Each compliance regulation and procedure may require its own control mechanism and its own set of indicators to assess the compliance status of the procedure.
Five Compliance Challenges
Adhering to the compliance-related requirements is a challenge for an enterprise because of the following issues:
The frequent introduction of new regulations.
Vaguely written regulations that require interpretation.
No consensus on best practices used for compliance.
Multiple regulations often overlap.
Constantly changing regulations.
Therefore, compliance becomes a continuous process, not a one-time project, and continues to drive business agendas as organisations are being held accountable for meeting the myriad of mandates specific to their vertical markets. In addition, enterprises might also be required to address cross-industry legislation and other internal control processes. Simply stated, the breadth and complexity of these laws and regulations have caused challenges for many enterprises over the years.
Benefits of Compliance
Enterprises need to approach their compliance principles from a more strategic perspective that could help them move beyond simply meeting individual compliance mandates to realising tangible business benefits from their infrastructure investments as a whole. A consistent approach to the use of compliance-driven capabilities and supporting technologies across an enterprise can provide these potential benefits:
Reduced total cost of ownership
Investments can be leveraged across multiple regulations. For example, many regulations specify document retention requirements, which can be met by a single investment in a content and records management system.
Flexibility
One of the difficulties with compliance is that new regulations are introduced and existing regulations are changed frequently. By centrally managing compliance initiatives via organisation-wide compliance architecture, an enterprise can quickly adapt to these changes.
Competitive Advantage
A broad and consistent compliance architecture can allow an enterprise to understand better and control their business processes, which allows them to respond more quickly and accurately to external or internal pressures. Furthermore, certain regulations may contain tangible business benefits through reduced minimum capital requirements, which could be enabled by an enterprise-wide compliance architecture.
Scope of Compliance Architectures Considerations
The scope of compliance also permeates other aspects of an enterprise. The table illustrates some issues an enterprise should consider as it attempts to establish its scope and approach to compliance.
Compliance Department
Because of the importance and complexity along with the challenges and potential benefits associated with compliance, a lot of enterprises have an entire department dedicated to making sure they adhere to all the external rules and regulations as well as the internal controls. That department is called the compliance department. For example, in the financial services sector, compliance departments work to meet key regulatory objectives to protect investors and ensure that markets are fair, efficient and transparent. They also seek to reduce system risk and financial crime.These objectives are designed to support consumer confidence in the financial system. Financial services organisations also are subject to regulatory business rules that govern advertising, customer communications, conflicts of interest, customer understanding and suitability, customer dealings, client assets, and money as well as rule-breaking and errors.
Responsibility of the compliance department
A compliance department typically has five areas of responsibility.
Identification
To identify the risks that an organisation faces and advise on them,
Prevention
To design and implement controls to protect an organisation from those risks.
Monitoring and detection
To monitor and report on the effectiveness of those controls in the management of an organisations exposure to risks.
Resolution
To resolve compliance difficulties as they occur.
Advisory
To advise the business on rules and controls.
Compliance Officer
A compliance officer, sometimes called a compliance manager, is an individual who makes sure that a company is conducting its business in full compliance with all national and international laws and regulations that pertains to its particular industry, as well as professional standards, accepted business practices, and internal standards, policies and bylaws. The chief compliance officer is usually the head of a firm's compliance department.
Challenge of a compliance officer
The compliance officer is responsible for ensuring respect for national and international regulations, professional and extra-professional norms as well as rules of ethics and good behaviour as defined by the company.
A good compliance officer must be able to analyse these regulations and norms from the company’s perspective depending on its activity, culture and the global financial environment. The challenge? To raise awareness and ensure that all employees, whether there are 50 or 300,000 and regardless of where they are located in the world, respect the legal standards as well as the values and ethics of the company. It’s a considerable challenge.
In addition, as had been said before, the law can sometimes appear abstract if not incomprehensible to large numbers of employees. A good compliance officer must consider how to integrate best practices in order to ensure respect for the regulations and values of the company.
Role of a compliance officer The role of a compliance program is to encourage respect for the values of the company and include concrete and effective policies and measures. The compliance officer must first define the DNA of the company. He or she will then adapt the program to take into consideration the specific issues faced by the company, the stakes involved, markets, history and the culture as well as the operational and reputational risks.
The Compliance Officer must correlate the compliance program and its implementation to the management of risks (corruption, antitrust, CSR, sanctions, reputation, etc.).
Strength comes from an alliance between the regulations and ethical behaviour.
Ethics are everywhere. The norms are diverse and numerous. The dissemination of information on ethics and norms in the company is a real challenge.
It must be broadcast to a large, diverse audience. At the same time, it must be adapted to each country or zone while remaining transnational. A company’s ethics code must be easily translated and implemented when borders are crossed.
The compliance officer must harmonise and define universal values that will be understood and respected by all staff, in all countries and cultures.
Duties of a compliance officer
A compliance officer helps his or her company maintain policies and procedures to remain within an industry’s regulatory framework. The duties of a compliance officer may include reviewing and setting standards for outside communications by requiring disclaimers in emails or examining facilities to ensure they are accessible and safe. Compliance officers may also design or update internal policies to mitigate the risk of the company breaking laws and regulations, and lead internal audits of procedures.
A compliance officer must have a thorough knowledge of the company and an awareness of where possible regulatory breaches may occur. It is essential that the compliance officer effectively communicates the company’s key ethical principles and compliance regulations.
In the event of a regulatory breach, it is important for the compliance officer to have appropriate disciplinary measures in place to avoid a future recurrence. It is the compliance officer’s duty to ensure continual monitoring and review of compliance procedures to help identify possible areas where improvements could be made. Compliance officers are expected to provide an objective view of company policies. Influence by other employees, including management and executives, to overlook infractions may result in significant fines or sanctions that may lead to financial loss or even business closure. Larger companies typically have a chief compliance officer (CCO) to direct compliance-related activities.
Compliance officers organise regular training sessions for employees to communicate key regulatory changes and updates. This is particularly important in a heightened regulatory environment where change is constant. The compliance officer must work with business units and management to ensure appropriate contingency plans are in place that set guidelines on how to respond to a possible compliance breach.
Skills and Qualities of a Compliance Officer
A compliance officer requires a unique skill set to ensure a company’s operations fully comply with regulations and procedures. Compliance officers continually review the work of others. Therefore it is essential they have polished people skills and work well with colleagues. They need to be reliable, showing commitment and unity in relation to a company’s regulations and procedures, and it is crucial they demonstrate this to colleagues, leading by example. Compliance officers must also have strong attention to detail. They need the ability to notice actions that may result in a liability. In addition to being a level-headed, clear communicator, here are some other qualities that excellent compliance officers possess:
Ethical and principled: These are the single most important qualities of a compliance manager.
Fair and modest: Willing to scrutinise all the facts without making a snap judgment, and interview any relevant employees for their perspective.
Proactive: A honed alertness and vigilance to potential breaches in compliance. This means actively enforcing a mandatory reporting policy and seeking out any weakness in company dealings.
Intelligent and willing to keep learning: Most industries that employ a compliance officer are subject to constantly changing legislation, so staying on top of things is vital.
Diligent: Even when it becomes a hassle, a compliance officer must always be willing to see an issue through to resolution.
A strong constitution and extra conviction: Solid backbone and the strength to stand by difficult decisions and be more influenced by right versus wrong than by relationships. Willing to take the lead in setting the tone for corporate integrity.
Most importantly, compliance officers should be highly trained, knowledgeable, and continually developing themselves. It is no coincidence that compliance officers that are employed by Investment Firms in Europe need to – by law – obtain training every year for their trade.
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