Does your company have an integrated compliance system in place? In today’s rapidly evolving business environment, compliance management is essential for ongoing success.
Compliance is a multi-faceted issue, depending on the industry, but most businesses exist under the watchful eye of a regulatory body. Nowhere is this more apparent than in the financial services sector, where every firm needs a compliance management system interwoven throughout the company.
Since 2008, the finance industry has had to adjust from comparative freedom to increasing regulation. Now the global pandemic has further complicated matters as compliance rules and regulations continue to expand.
But what is a compliance system or compliance program? Are they unrelated elements or merely different names for the same thing? What is compliance management software? And how does operational risk management slot into the equation?
This article will answer these questions and explore how you can shield your business from unwelcome compliance issues.
What is a Compliance System?
Simply put, a compliance system protects your firm from risk.
According to the Cambridge Business English Dictionary, compliance is “the act of obeying an order, rule, or request.”
In business today, this means your firm, staff, and third-party vendors must fulfill the laws, ethical guidelines, principles, and standards that govern your company and industry.
The Securities and Exchange Commission (SEC), Federal Reserve Board, and the Financial Industry Regulatory Authority (FINRA) are the key national governing bodies for the finance industry.
Depending on the location of your organization, there will be state regulatory agencies with additional rules and requirements. Each entity has regulations that must be followed by fund managers, brokers, accountants, and other finance professionals.
But compliance is more than adhering to federal and state laws. First and foremost, the goal is to keep your business free from fines and litigation.
With a compliance system, firms keep track of the multiple internal procedures that make up the company’s day-to-day functioning. With continual oversight, missteps are picked up timeously. This protects the company from problems that can hamper operations and add risk.
Put Compliance First
This is where a corporate commitment to instituting a robust compliance system delivers a massive payoff. Most firms will set up a program or system for precise, continuous monitoring of operations.
But first, we need to know how does a compliance system differ from a compliance program?
Both terms refer to compliance management and start with a group of policies and actions put in place by a firm to safeguard its operations. The object is to fulfill the laws, rules, and regulations that govern the industry and uphold your firm’s reputation.
Along with a high-quality legal framework, a well-defined compliance system is the foundation for a good organization and is made up of elements such as:
- The compliance manual
- Code of ethics
- Associated policies (i.e., valuation, personal trading, trade errors, allocations, best execution, and soft dollars
Ideally, a firm’s compliance team will create the compliance system based on rules and regulations set out by the regulatory bodies. The team will also monitor the system’s use and see that everyone is following the program.
Merits of a Solid Compliance Strategy
The value of establishing a robust compliance system for your company is manifold. First, the tangible benefits:
- It prevents fines and lawsuits
- Avoids misconduct
- Circumvents fraud
- Protects business reputation
And the intangible paybacks:
- Protects firm’s intellectual property
- Shields your client base
- Preserves the business’s brand
Throughout the firm, all compliance activity should be linked. Departments and employees must work together to maintain internal standards and external regulations. When the whole organization is engaged, the risk of serious failure or fraud is mitigated.
Getting the Team on Board
Nowhere is the adage, “A chain is only as strong as its weakest link” more accurate than in business.
Without a clear understanding of a firm’s standards and expectations, an employee can unwittingly become the most vulnerable link. The best compliance system gets everyone on board and fosters a company-wide culture of compliance.
A sound compliance system will also improve communication between the employees and management. By including everyone in the loop, staff know the rules, regulations, and standards they’re expected to uphold.
But, getting employees on board with your organization’s compliance program has additional benefits:
- Staff can focus on the company’s broader goals
- Operations run more smoothly
- Employees recognize and report illegal or unethical activity
- Firm accomplishes growth
A well-maintained compliance system will also help your staff do their jobs well and further their careers.
Building a Better Compliance System
A compliance system should be sensibly planned and carefully applied, but there’s nothing wrong with using a successful formula tailored to your firm’s specific requirements.
Initially, these guidelines were laid out in the Affordable Care Act and were designed for the healthcare sector. However, these key elements are a strong foundation for any firm setting up a compliance system in a highly regulated industry.
These are the recommended components for establishing an effective business compliance system:
- Create consistency with written policies and standards of conduct outlining the firm’s compliance expectations.
- Provide system oversight. Who will supervise and enforce the compliance system? Who will act as the firm’s “watchdog” to deal with concerns and questions?
- Supply training and education for your employees so that everyone is aware of the firm’s standards and expectations—update staff yearly with refresher courses.
- Establish shared communication throughout the company. Employees must be expected to communicate: reporting problems, compliance queries, or voice ethical concerns. Include a system whereby employees may anonymously report compliance problems without fear of retaliation.
- Put an auditing and monitoring system in place. A method of internal and external oversight with formal audits will measure the success of your compliance system and identify risks.
- Apply reliable discipline. Maintain the company’s compliance standards with suitable punitive actions for staff who fail to comply with corporate requirements.
- Take consistent corrective action as soon as necessary. When monitoring and auditing reveal weaknesses or violations, act promptly to fix the issue.
An effective compliance system fulfills one of the main objectives of operational risk management, staying compliant!
Are your compliance goals clearly defined? Do you want to update or improve your compliance system? It could be time to apply technology to the problem with workflow/task management software.
Compliance Management Systems and Software
With compliance management software, you are maintaining your business process workflow in a way that lessens risk.
These software solutions offer features with numerous paybacks and can incorporate an assortment of business processes, including:
- Acts as a central data repository for business-critical information
- Allows sharing of information between stakeholders
- Gives selective and restricted access to employees—dependent on their authentication
- Distributes information accurately
- Eliminates silos
- Provides a well-connected work setting
Compliance management systems are designed to allow your firm to follow best practices painlessly.
A sound system gives you visibility and control over your company’s compliance efforts. Otherwise, there isn’t a simple means of tracking or measuring what is being done and by whom.
Staying compliant and abreast of regulatory rules has always been a mission-critical concern for financial firms. Organizations with a compliance management system in place can circumvent many of the operational risks related to their industry.
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