In today’s corporate world, accountability, transparency and risk mitigation are possibly the most crucial elements. Collectively, these components ensure that enterprises all over the globe are comfortable enough to execute transactions knowing that the structure within which they operate adheres to the rules and regulations in force at a given time.
What is Regulatory Compliance?
Providing a definition which encapsulates all the duties and responsibilities which emanate from the term “regulatory compliance” is close to impossible. However, one can easily establish that regardless of, and depending on, the dimensions of a particular business activity, it is imperative that an adequate Compliance Framework is in place.
In simple terms, one could say that its main function is to ensure constant and continuous communication between operators and authorities overseeing a particular industry. With this in mind, one can safely say that within the Financial Services industry an entity must be well-equipped to ensure that it observes not only the laws which govern the particular sector within which an entity operates but must also ensure compliance with other prevalent laws and regulations, namely those governing Anti-Money Laundering and those relating to the Combating of Financing of Terrorism.
The Compliance Officer and the Risk-Based Approach
The duty to ensure that an entity has the necessary policies and procedures, whether external or otherwise, in place, whilst ensuring that the entity conforms to the relevant laws and regulations is generally associated with the Compliance Officer. It is also within the Compliance Officer’s remit to ensure that the policies and procedures in place are properly implemented in the entity’s operations.
This role is of particular importance within a compliance set up due to the nature of this function requiring a substantial degree of neutrality in assessing the efficiency of an entity’s compliance framework. It is crucial, therefore, that the Compliance function operates independently from other services offered by the same entity.
In order to better carry out their duties, it is helpful if the Compliance Officer is granted the necessary seniority. The supervisory nature of this role requires an in-depth level of knowledge and most of all, that the entity within which the Compliance Officer is engaged makes all of its resources available to them.
Should this not be the case, a Compliance Officer is responsible for notifying senior management of any risks, whether AML related or not, which the company may face.
In addition to the above, the Compliance function is also responsible for the submission of annual reports, the carrying out of training (internally) and general regulatory compliance.
Benefits of an Efficient Compliance System
Whilst the setting up and maintenance of a proper compliance system has been viewed by many as a burdensome exercise, when a compliance system produces the intended results, it facilitates the operations of the given entity and serves to guide the entity forward in the decision-making process.
Needless to say, maintaining an efficient system requires constant updating and following-up with the law in force at the time, yet this too has its own benefits. Upkeep of a system requires that the staff who is involved in the entity’s policy making brings about the necessity to stay informed and in turn this knowledge is shared with other employees of the entity, resulting in a better-informed work force.
Natural consequences of an updated compliance system include the fact that at any point in time the entity is in a position to produce the necessary documentation, particularly when required by the relevant authorities. This essentially reduces the risk of entities having to incur penalties or even worse, having their licence revoked.
From a business perspective, a formidable compliance system sends out the message to prospective clients or partners that the entity is in fact a reliable one.