Importance Of Compliance For The Financial Sector

Constraints to Effective Implementation

Discuss about the Importance of Compliance for the Financial Service sector with emphasis on Selected Current concerns and Issues.

Organizations are always looking for growth. They are always striving to be sustainable in the growing world. Hence, the organizationsneeds to go through some major disciplines due to which the work ethics, productivity, employee satisfaction and such characteristics are maintained in the organization. Once this is done, organizations tend to grow. Such type of disciplinary regulations is known as the regulatory compliances. Compliance means imbibing some new regulations or policies in the system.  Regulatory compliance is something which drives an organization to achieve its goal by complying with the new policies and procedures. Compliance can also be seen as the guidelines or policies that are already imbibed in the system, are still working good for the organizations to grow[1]. In this report, the importance of compliance, its constraints to effective implementation, principles and framework and how it can be monitored is discussed.

In a few recent years, there have been a lot of times when an organization lost its glory due to the corporate scandals or unethical issues. Hence the organizations need to have a strong hold on compliance. Non compliance can be very devastating and can cause very severe damage to the system. When recently a few organizations faced the big drop because of getting into all the scandals, compliance has become a very important point of discussion in the boardroom of every organization[2]. Hence, it should be a part of an organization for day to day basis so that the organization can be sure of the local as well as the international regulations and abide with them. Compliance also helps the employee to be goal oriented and keeps them motivated all the time as well as a good behavior is also expected from them in order to be in the company.

There are several concerns due to which compliance is very much needed in any organization.

• Managing a dynamic IT environment: It has developed a lot in these few recent years. It helps to manage the data of an organization and helps in transferring the data in seconds. A few technologies like cloud computing and mobility, which makes the data easy to access from anywhere and by anyone, has led the securities and exchange department to again issue the compliance policies for IT[3].
• Managing Corporate enterprise risk: ERM wants to be followed and implemented by every other company. But when they do, they struggle to imbibe and implement it. It is usually managed by the high level authority. It involves identifying, analyzing, monitoring and the directioning of all the risk factors (internal and external). This is not limited to any of the compliance and any liability.
• Risk of regulatory non compliance: Regulatory compliance risk is much more in the industries like health care, finance and energy. This compliance requires a lot of effort to understand the regulatory policies and cases and enforcement of these regulatory agencies. Many companies become the target to the regulatory offense due because of the lack of resources too.
• Understanding corporate compliance in international market: Working in an international market is an open invitation to the opportunities and new experiences. But with the new opportunities comes great risks too. Organizations which work internationally, has to be sharp eyed about contract laws that involve local transactions and the differences in cultures of the two different lands. 
• Maintaining a strong compliance program: Compliance has become necessary in every other organization these days so it is important that it is managed and analyzed properly.
• Political: There are sometimes some political pressures on the regulators as well which hinders the compliance activity and that becomes a big concern for the organization[4].

The constraints that hinder the implementing of the compliance program are:

• No information to senior leaders: The senior leaders should be well informed and trained about the compliance program and it regulations because they are the face of the organization. The compliance officers should make sure that these leaders are well informed. They should also be well informed about their role to manage the compliance in a better and effective way[5].
• Compliance- Not a part of company culture: When compliance is not a part of an organization, there tends to be situations when the company might face any dilemma. The compliance officers should make sure that each employee of the company should be known to the compliance regulations and policies.
• No Proactivity: In order to have a good compliance program going on in the company, the changing rules and regulations should be known and updated on the daily basis. A good company is the one which is already nicely regulated irrespective of the investigation that takes place in the organization.
• No plan: If there is a sudden emergency or a misfortune in the company, the authorities should be able to respond to it quickly rather than taking too much time to understand it first. A good compliance program is the one which helps the authorities to do so.
• Compliance – Everyone’s job: The compliance officers are not the only people that are responsible for the compliance, everyone is. Due to this effective compliance implementations can be achieved.

It can be difficult to measure the success of compliance. Some organizations just go through the reports and try to monitor the compliance but this cannot always be enough. There should be some ways through which it can be evaluated. They are:

• Analyze the Training: Initially training should be give to the employees to learn the regulations of the compliance program. Later, it should be tested and analyzed if the employees are still intact with the compliance program or not.
• Conduction of Survey: Apart from the analysis of the trainings, a few surveys should also be conducted around the whole year which tests the employees with the ethics and surroundings knowledge. By doing this, the attitude towards compliance is tested.
• Information Pooling: To evaluate the complete success, the data from the HR about the employees should also be taken with the compliance data that is already there in the system. By pooling all the information taken from all over the surroundings, compliance can be evaluated in an effective way.
• Connect with the managers: Maximum times, when anyone plays with the compliance or anything unethical, he reports it just to his superiors. That data gained by the managers will prove to be helpful in effectively measuring compliance.

There are 5 principles which help the organization in effective risk management irrespective in good and bad times both. They are:

1. Honesty towards discipline: Integrity towards discipline comes when the higher authorities follow what they preach. If they follow the discipline honestly then they can keep up the same tone with their employees
2. Effective Board Engagement: There should be constructive board meeting and all the board members should be involved in managing and monitoring the risks.
3. Positioning the Risk: Positioning the risk might not be helpful completely but some fundamental principles can make it work. The chief risk officer functions towards making the organization risk proof by maintaining proper connection with the leaders.
4. Culture: Corporate culture is affected many times due to many factors. The leaders should provide actionable risk culture so that the organization is ready to face any misfortune.
5. Rewards: Risk also includes behavioral changes. Every organization should be kind enough to reward the employees for their hard work otherwise it can expect behavioral risks from employees which finally lead to a lot of terminations.

Principles and Framework for Risk Management

Organizations are very much prone to the crimes of the data breach or cyber crime or fraud if compliance is not effectively imbibed. For example: Commonwealth Bank of Australia. This financial institution is a very apt example of not having a proper compliance. This bank had to go through a lot because of no proper maintenance of the data. They were accused of supporting mining reef projects. Also they were unethical in working too and that is why a huge number of their customers were dissatisfied. Vulnerabilities to compliance are:

1. Not having proper internal system control
2. Not having proper risk management
3. In case of mergers, if the company is ineffectively controlled.
4. Lack of knowledge of illegal transactions and data about it.
5. No financial data maintained.
6. Board not understanding proper risk management process.
7. Not able to read the employees behavior and no rewards for them.

Risk mitigation involves the measures that are taken to make an organization risk proof. Some of them are:

• Accepting the risk: Any organization should accept the fact that it can also be prone to risk. Accepting it makes it even more easier as then the organization strive itse;f to work towards it.
• Avoiding the risk: It is exactly opposite to risk accepetnce. Risk mitigation can be very expensive if the risk is avoided.
• Limiting the risk: When the organization sees the risk coming, it can limit that risk by applying the needed measures to do that. It is the most commonly used method.
• Transfer the risk: This method is used when the organization finds a third party to transfer the risk to. Some companies outsource a few of their operations to the third party to mitigate the risks.

A compliance monitoring method is a type of the quality assurance testing which is done in every organization on a daily basis to test the everyday activities. This work is done by a whole different team and it makes sure that the business is running nicely without any problem[10].

Major factors that help in execution of the program are:

1. Governance: All the stakeholders should be aware of the program and they should also have their roles in it.
2. Purpose: There should be a well defined agenda and purpose before the execution.
3. Controlled Process: The process should be well defined and it should be monitored.
4. Testing: Monitoring of the program should be done on the daily basis and so that it is easy to prevent any misfortune.
5. Technology: Best technology should be used in order to have accurate results.
6. Documents: Each and everything should be documented in order to have a well defined process.

There can be some exceptions or breaches in the system which can be reported to the higher authorities so that the compliance framework is good to be monitored. Any breach should be identified first with the help of continuous monitoring of employees, stakeholders, technological system, transactions and other departments. It can be reported immediately to the higher authorities and the compliance department as soon as it is identified. Reporting will help in the compliance monitoring a lot.

Giving the training on compliance in any organization is important. This is the responsibility of the company to educate all the stakeholders about it.

There are a few things to keep in mind while preparing for the short term training[11].

• The compliance as a topic should be reviewed well before.
• The objectives for the learning should be derived.
• This training can be given to the larger audience as well and to any location with the help of the internet but one should be sure of the audience (who is taking the training and how well is he getting it).
• Short term training will be helpful as it will end ion tome without ruining the working hours of the employees to much extent. Hence, it should be crisp and to the point.
• New designing and developing of the models should be done for the audience to get it in a better way.

To imbibe the effect in a positive way in the stakeholders of the company, the compliance training that is given to them should be very effective.  There are six key elements for that. They are:

1. Commitment: Many leaders or the higher authorities are seen negligent when it comes to this type of training. Sometimes they just circulate the policy documents to the employees saying that it is for them to learn and imbibe. When the leaders are this negligent, a good compliance cannot be maintained it the organization.
2. Ownership: In order to get an effective compliance program, the leaders should set up the expectations with the resources before hand and should also involve resources wherever support is required. They should divide the ownership of every other thing to each employee. This way everybody will be ready to face the risks.
3. Support after training: All the participants of the training should be given the chance to be a part of the compliance breaches if any. Even after months of the training they should be tested and supported wherever there is a need.
4. User Engagement: While the training is being given, it is important for the trainer to keep all of the audience involved in the training. They can be easily bored if they are not involved or not enjoying the training. Also if they will be engaged all throughout, they will learn more.
5. Alignment: If the training needs to be effective, the authorities should be totally aligned with the stakeholders and employees so that they can know how well the training is imbibed into them.
6. Measurement of value: To keep maintaining an effective compliance in the organization, the program should be goal oriented; the leaders should be regularly communicating with the employees and keep ensuring that the program is working properly.

A few measures to measure effective compliance program are:

• Background check should be done within the company so that all the breach could be reviewed.
• Once if the fraud of any team or department is caught, it should be taken as a note for the future.
• Other organizations data should also be checked via reports, news etc. This way one gets to know as to how other companies have stumbled. This can help establish a good compliance in the company.
• Cost efficiencies should be managed so that manual errors will be less.

Conclusion

Compliance is not just a word but is a regulatory craft of the policies that should be imbibed in the organization very effectively. Many companies face breaches and fraud and they have to go through many downfalls. This report has a study about compliance as to how compliance can be implemented, measured, the key elements to implement it and the challenges that are there in imbibing this training in every employee. There are very important principles to implement the compliance regulations in the organization. Also the importance of it is discussed.

Current Concerns and Issues

Allenovery, The increasing importance of compliance (21 April 2015) https://www.allenovery.com/publications/en-gb/Pages/The-increasing-importance-of-compliance.aspx

Benedek, Petra, ‘Compliance Management – a New Response to Legal and Business Challenges’ (2012) 9(3) Acta Polytechnica Hungarica 136

Msujbsl, Importance of Compliance in the International Financial Services Market (2014) https://www.msujbsl.com/content/importance-compliance-international-financial-services-market

Jennifer, M, Leary, Keeping Your Company Safe: The Top 5 Compliance Issues Trending Now (2017) <https://www.corporatecomplianceinsights.com/keeping-your-company-safe-the-top-5-corporate-compliance-issues-trending-now/>

Sabastian, Vige, Five Challenges Facing Governance, Risk, Compliance (2017) https://www.marklogic.com/blog/challenges-facing-governance-risk-compliance/

John, McSwain, CPA, and Kenneth Zeko, J, D, 5 Barriers to an Effective Compliance Program (20 September 2016) https://www.crowehorwath.com/insights/healthcare-connection/effective-compliance-program.aspx

Josh, Young, 5 Tips for Measuring Compliance Program Effectiveness (25 April 2017) https://www.workplaceanswers.com/resources/blog/5-tips-for-measuring-compliance-program-effectiveness/ 

Jim, Deloach, 5 Key Principles of Successful Risk Management (6 December 2016) https://www.corporatecomplianceinsights.com/5-key-principles-successful-risk-management/

Sarbanes, Oxley, 10 Threats To Compliance (2004) file:///C:/Users/Nidhi%20Vyas_JPR/Downloads/us-aers-assur-ten-threats-sep2004.pdf

Michael, Harrera, Four Types of Risk Mitigation and BCM Governance, Risk and Compliance (17 May 2013) https://www.mha-it.com/2013/05/four-types-of-risk-mitigation/

E&Y, Practical considerations for your “best execution compliance program (March 2017) https://www.ey.com/Publication/vwLUAssets/EY_Practical_considerations_for_your_%E2%80%9Cbest_execution_compliance_program%E2%80%9D/$FILE/EY-sifma-best-execution-brochure.pdf

Sherri, Winter, Compliance Training—Critically Important, Too Often an Afterthought (29 January 2015)  https://www.caveolearning.com/blog/compliance-training

Skillsoft, Six Elements of Effective Compliance Training: What moves the needle (2015) https://www.skillsoft.com/assets/white papers/Skillsoft_whitepaper_Six_Elements_of_Effective_Compliance_Training.pdf

Convercent, 7 Bottom-Line Measures of Compliance Program Effectiveness (2015) https://www.convercent.com/resource/convercent-guide-7-bottom-line-measures-of-compliance-program-effectiveness.pdf

Metricsstream, Integrated Risk and Compliance Management for Banks and Financial Services Organizations: Benefits of a Holistic Approach (2018) https://www.metricstream.com/whitepapers/html/financial_services.htm

Cognizant, Financial Crime: How Financial Institutions Can Mitigate Risk and Improve Compliance (May 2016) https://www.cognizant.com/whitepapers/financial-crime-how-financial-institutions-can-mitigate-risk-and-improve-compliance-codex1949.pdf

Deakinworldly, Compliance Management Framework (7 October 2014) https://policy.deakin.edu.au/download.php?id=363&version=1&associated

Mills, Kenny  and Haines, Peter, Essential Strategies for Financial Services Compliance (John Wiley & Sons, 2015)

Petra, Benedek, ‘Compliance Management – a New Response to Legal and Business Challenges’ (2012) 9(3) ActaPolytechnicaHungarica 136

Allenovery, The increasing importance of compliance (21 April 2015) https://www.allenovery.com/publications/en-gb/Pages/The-increasing-importance-of-compliance.aspx

Leary, M, Jennifer, Keeping Your Company Safe: The Top 5 Compliance Issues Trending Now (2017) <https://www.corporatecomplianceinsights.com/keeping-your-company-safe-the-top-5-corporate-compliance-issues-trending-now/>

Vige, Sabastian, Five Challenges Facing Governance, Risk, Compliance (2017) https://www.marklogic.com/blog/challenges-facing-governance-risk-compliance/

McSwain, John, CPA, and Zeko, J, D, Kenneth, 5 Barriers to an Effective Compliance Program (20 September 2016) https://www.crowehorwath.com/insights/healthcare-connection/effective-compliance-program.aspx

Young, Josh,  5 Tips for Measuring Compliance Program Effectiveness (25 April 2017) https://www.workplaceanswers.com/resources/blog/5-tips-for-measuring-compliance-rogram-effectiveness/

Deloach, Jim,  5 Key Principles of Successful Risk Management (6 December 2016) https://www.corporatecomplianceinsights.com/5-key-principles-successful-risk-management/

Oxley, Sarbanes, 10 Threats To Compliance (2004) file:///C:/Users/Nidhi%20Vyas_JPR/Downloads/us-aers-assur-ten-threats-sep2004.pdf

Harrera, Michael,  Four Types of Risk Mitigation and BCM Governance, Risk and Compliance (17 May 2013) https://www.mha-it.com/2013/05/four-types-of-risk-mitigation/

E&Y, Practical considerations for your “best execution compliance program (March 2017) https://www.ey.com/Publication/vwLUAssets/EY_Practical_considerations_for_your_%E2%80%9Cbest_execution_compliance_program%E2%80%9D/$FILE/EY-sifma-best-execution-brochure.pdf

Winter, Sherri, Compliance Training—Critically Important, Too Often an Afterthought (29 January 2015)  https://www.caveolearning.com/blog/compliance-training

Skillsoft, Six Elements of Effective Compliance Training: What moves the needle (2015) https://www.skillsoft.com/assets/white papers/Skillsoft_whitepaper_Six_Elements_of_Effective_Compliance_Training.pdf

Convercent, 7 Bottom-Line Measures of Compliance Program Effectiveness (2015) https://www.convercent.com/resource/convercent-guide-7-bottom-line-measures-of-compliance-program-effectiveness.pdf