Two of the most significant developments in the financial industry over the last few decades have been the advances of new technology and compliance functions.
Business entities across the globe must follow and maintain government and professional standards, while the regulations and standards enforced on every organisation make compliance an ongoing headache
Compliance has always been and will always be one of the top priorities and concerns of CFOs and financial directors. Regulatory reforms following the global financial crisis of 2008 compelled finance heads all over the world to make substantial investments in risk and compliance – both in terms of technology and headcount – to prevent and remediate regulatory issues.
With the consequences of failing to comply with laws, regulations and standards having such a high potential cost, compliance is clearly a very big issue for organisations. The cost of non-compliance outweighs anything that might be gained from cutting corners. Non-compliance means being slapped with hefty penalties not to mention consequent reputational damage. The penalties for non-compliance have also grown substantially. As governments clamp down on business laws, the possibility of fines and penalties have prompted organisations to take compliance more seriously and hire the right talent and engage with the right compliance software and compliance systems to ensure they remain within the law.
Compliance management is the process by which financial directors and CFOs plan, organise, control, and lead activities that ensure compliance with laws and standards.
The activities entailed by compliance management include:
- Internal audits
- Third-party audits
- Security procedures and control
- Preparing reports and providing supporting documentation
- Developing and implementing policies and procedures to ensure compliance
Compliance management is an integral part of an organisation staying on the right side of the law and begins with a compliance benchmark. Here are the bases covered by compliance management:
- Understanding the organisation’s process in order to know whether there are any market trends or new legislation affecting their industry
- Ensure employees understand how to adhere to compliance
- Align the business functions with compliant procedures
- Review processes and operations to make sure compliance requirements are met in all business tasks and activities
- Correct and update violations where necessary and relevant
There are two approaches to compliance management: lay down the law and be an enforcer or leave room for judgement calls and some flexibility. It’s up to individual organisations to plan for, implement, and enforce compliance.
Despite a general shift towards regulatory convergence and industrial standardisation, a recent flurry of sweeping legislative acts and updates has created a series of new hurdles for organisations operating in a range of key jurisdictions.
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From GDPR and MiFID II to Volcker 2.0 and FRTB, regulatory compliance has never been trickier or more crucial. Compliance is no longer a simple box-ticking exercise – it has the power to make or break any organisation – with many organisations viewing regulations and compliance as an opportunity to ensure business processes are watertight and, importantly, efficient
Compliance software helps to manage compliance for an organisation. The good news is that compliance processes can be supported like never before by automation, through latest technology such as RPAs and artificial intelligence.
With the Financial Conduct Authority (FCA), the UK regulator, acting as torchbearer for global regulators in promoting innovation in the field, technology in compliance software is fast gaining currency by transforming how organisations can tackle compliance in a swift, comprehensive and less expensive manner.
Switching to compliance software does not require a complete overhaul of legacy compliance systems. Compliance software can extract relevant regulatory data from existing compliance platforms without the financial burden of replacement. The data so extracted can be processed, cleansed and manipulated in a timely manner by robust analytics to ensure accurate, consistent, configurable and secure reporting.
Compliance gets more cumbersome for global organisations as they are subject to multiple jurisdictions and country-specific regulation. Compliance software can track data and perform internal audits by region and country without having to deploy separate country-specific solutions. Many have inbuilt horizon scanning capabilities to keep track of changes in regulation.
Built on cutting edge agile technologies with a quick turnaround time, compliance software tends to be adaptable and scalable to keep pace with fast changing regulatory and financial reporting needs, a feature conspicuously absent in rigid legacy infrastructure. It’s speed and flexibility effectively reduces the costs associated with overly long implementation by traditional vendors.
Consider these top 10 compliance management software solutions while considering investing in compliance technology:
Compliance management systems
Compliance management systems (CMS) give organisations visibility into, and control over, their compliance efforts. Without a CMS, the organisation will have no easy way to measure or track compliance; and will lack of visibility on who within the organisation is doing what, when or how.
It is a comprehensive compliance program. It is an integrated system comprised of written documents, functions, processes, controls, and tools that help an organization comply with legal requirements and minimize harm to consumers due to violations of law.
A compliance system contains four areas of focus:
Board Oversight: The effectiveness of a compliance system is comprehended in the actions taken by its board and senior management. In any organisation, the board is ultimately responsible for developing and administering a compliance system that ensures adherence to the applicable laws and regulations.
Compliance Program: The compliance program is the nuts and bolts of the compliance system. When the organisation’s compliance program functions properly, the whole compliance system operates smoothly, efficiently, and effectively. In addition to a planned and organised effort to guide the organisation’s compliance activities, a written program represents an essential source document that will serve as a training and reference tool for all employees.
Complaint Response: The organisation must be able to prove that it can monitor and analyse consumer complaints in a repeatable manner.
Compliance Audit: A compliance audit is an independent review of an organisation’s compliance with consumer protection laws and regulations and adherence to internal policies and procedures. Audits help regulators, government agencies, banking partners, and members of executive leadership to ensure that the business is following fair practices.
The birth of RegTech
According to the Thomson Reuters Cost of Compliance 2017 Report, over half of all firms surveyed said they would definitely be increasing their total compliance budget over the course of 2018 – with one in four organisations reporting they planned to outsource some or all of their compliance functionality.
Like the rise of new technology, the ascent of the compliance function over the last decade or so has dramatically changed the operations of many organisations. This rise is fuelled by increased regulatory scrutiny as well as increased complexity in regulation. Compliance will grow more reliant on new information technology systems in response to regulatory and management pressures. It has been estimated that corporate spending in GRC systems “will grow from $15.98 billion in 2015 to $31.77 billion by 2020.”
Owing to this rise, the compliance and technology functions have become more integrated. Thus, RegTech!
Heralded by Deloitte as “the new FinTech”, regulatory technology – or RegTech as it’s more commonly known – is a sector specifically focussing on the compliance, security and regulatory aspects of FinTech. RegTech platforms facilitate the delivery of regulatory requirements more efficiently and effectively than traditional, manual solutions. Essentially, RegTech is about developing technology solutions that can help firms better comply with regulations in an agile, comprehensive and cost-effective way.