The term compliance describes the ability to act according to an order, set of rules or request.
In the context of financial services businesses compliance operates at two levels.
Level 1 - compliance with the external rules that are imposed upon an organisation as a whole
Level 2 - compliance with internal systems of control that are imposed to achieve compliance with the externally imposed rules.
DUTY - The Compliance Officer has a duty to his employer to work with management and staff to identify and manage regulatory risk.
OBJECTIVE - the overriding objectives of a compliance officer should be to ensure that an organization has systems of internal control that adequately measure and manage the risks that it faces.
RESPONSIBILITY - The general responsibility of the Compliance Officer is to provide an in-house compliance service that effectively supports business areas in their duty to comply with relevant laws and regulations and internal procedures.
Corporate governance is a highly inclusive concept that covers a number of different aspects about the way in which an organisation is managed, directed and governed.
It can be described as a set of relationships between a company’s management, board, shareholders, and other stakeholders, which provides the structure through which the objectives of the company are set. Furthermore it provides the means of attaining and monitoring performance against those objectives.
The term ‘regulation’ generally refers to a set of binding rules issued by a private or public body with the necessary authority to supervise compliance with them and apply sanctions in response to violation of them.
Although there is no unified theory of financial services the key objectives of regulation is as follows.
Effective regulation is regulation that:
Primary legislation refers to the Law, Act or Ordinance passed by the legislative of a particular jurisdiction.
The legislature in many jurisdictions has the power to delegate or subordinate law making powers to other agencies that may then make delegated or subordinate legislation often referred to as “secondary” legislation. In the context of financial services, secondary legislation is generally legislation that has been drafted by a regulatory body empowered to do so pursuant to the primary law by which it is established.
Codes generally set out the broad principles by which a regulated business is expected to conduct its business.
Rules are generally very detailed and relate to every regulated activity and function.
Guidance can either be in the form of a statement of best practice or a statement of minimum best practice.
Occasionally a regulatory authority will feel compelled to issue detailed guidance to regulated businesses on how it expects them to actually discharge their legal and regulatory obligations. Anti money laundering and terrorist financing is one area where most regulators around the World have issued guidance.
In broad terms regulators fulfill the following seven functions:
Many regulators adopt a risk-based approach to supervision and follow a process of supervision that can be divided into the following four steps:
Step 1. Defining the objectives
Step 2. Obtaining information from regulated businesses
Step 3. Assessing the risk that regulated businesses face and pose
Step 4. Taking action in response to the risk assessment
There are essentially two methods by which compliance with regulatory rules is monitored – Onsite supervision and Offsite desk based supervision.
1. On site supervision entails visits by the staff of a regulator to the offices of a regulated entity, with the objective of satisfying etc
2. Offsite desk based supervision requires regulated financial services businesses to provide relevant information by means of ‘supervisory returns’ normally prescribed within legislation and or license conditions.
Conduct of business rules govern the manner in which a business conducts itself in its relationships with consumers. Conduct of business rules impose minimum standards of acceptable conduct upon regulated businesses.
Enforcement is a necessary product of the process of authorisation and supervision, in the sense that a regulator must enforce compliance with rules. Enforcement is as much about investigating, gathering and sharing information as it is about imposing penalties.
Enforcement generally entails the following:
Learn more about ICA Compliance Qualifications.
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