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Why compliance is important

Our Head of Operations & Compliance, Trevor White talks about the importance of Compliance.

Compliance ensures that a business adheres to external rules and internal controls. In the financial services sector, compliance works 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.

At Capital 19 we have a strong compliance culture and it is important for all business to have a compliance culture that is supported from the top.

The 2008 financial crisis led to increased regulatory scrutiny and regulation. This caused financial services organisations to increase the role of the compliance department from advisory to active risk management and monitoring. Compliance now provides practical perspectives on translating regulations into operational requirements.

This stronger risk culture includes timely information sharing, rapid escalation of emerging risks as well as willingness to challenge existing practices. Effective execution of these expanded responsibilities requires a deeper understanding of business and business practices. And, the structure of the compliance department has changed to combine business-unit based coverage with broader, shared expertise across the organization. Recent topics addressed by compliance departments include conduct risk, Banks Secrecy Act and Anti-Money Laundering(BSA/AML) risk, subcontractor risk, and overall risk culture management.

Understanding Compliance

Compliance typically has five areas of responsibility—identification, prevention, monitoring and detection, resolution, and advisory. A compliance department identifies risks that an organisation faces and advises on how to avoid or address them. It implements controls to protect the organization from those risks. Compliance monitors and reports on the effectiveness of controls in the management of the organizations risk exposure. The department also resolves compliance issues as they arise and advised the business on rules and controls.

For example, Compliance managers within a compliance department have a duty to their employer to work with management and staff to identify and manage regulatory risk. Their objective is to ensure that an organisation has internal controls that adequately measure and manage the risks it faces. Compliance managers provide an in-house service that effectively supports business areas in their duty to comply with relevant laws and regulations and internal procedures. The compliance manager is usually the company’s general counsel, but not always.

Industry regulators authorize and supervise compliance rules through investigation, gathering and sharing information and imposing applicable penalties. Factors used to determine risk within an organization include the nature, diversity, complexity, scale, volume, and size of its business and operations.

Key Takeaways

  • Compliance ensures that a financial services business adheres to external rules and internal controls.
  • It also identifies risks that an organization faces and advises on how to avoid or address them.
  • The 2008 financial crisis led to increased regulatory scrutiny and regulation, leading compliance departments to go from an advisory role to active risk management.

 

 

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.