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What are the 8 elements of a compliance program?

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Any business will need a compliance program. They help run an effective and ethical business. They are necessary to handle any ethical issues that might arise in the company. This might range from daily operations that affect the wider world, like environment or harmful ingredients in products or being closer to home, like workplace harassment. For financial services firms, compliance also focusses on the prevention of the use of services for unethical purposes, such as money laundering, terrorist financing and fraud as well as ensuring that the business meets other regulatory requirements, for example, to ensure that customers are treated fairly and that the firm is managing risks appropriately.   

It is important to have a compliance officer or committee handling these issues whether it’s to avoid the consequences of them or to prevent them from happening in the future. Financial regulators define minimum requirements and experience for compliance personnel and will also scrutinise business plans and structures to ensure that the appropriate compliance expertise is in place in the correct positions and with the appropriate authority to maintain regulatory compliance. 

Read on for our guide to the role of a compliance program in a sustainable business.  

  1. Detecting risks, offences and corrective action

Developing a compliance program is a good way of tracking and responding to compliance issues within the business. This can both handle and prevent offences within the workplace by investigating, documenting, and enforcing corrective action. This process tracks the resolution of complaints and prevents new complaints from arising.  

It’s important that businesses act quickly to detect and resolve offences to deter future issues  

Development of a compliance program should begin with a risk assessment and identification of requirements; regulatory, third-party requirements and internal brand and culture.  From this process, firms can then determine what compliance controls, policies and procedures are appropriate for their business. 

  1. Maintaining a standard of conduct

To ensure that everyone is treated fairly within the business and that the business doesn’t negatively affect the wider world, a standard of conduct must be maintained.  

Compliance programs are necessary to put together a collection of policies, procedures, and standards of conduct. They should be written to be easily understood and created to maintain compliance in job functions. Compliance systems, policies and procedures should be monitored, reviewed and edited on a regular basis to ensure that standards of conduct are maintained.  

These standards need to be applied in a consistent way, following the policies and procedures, to ensure effectiveness and to protect the business from potential legal action.  And the responsibilities of individuals need to be clear; not just those following the policies and procedures, but also those responsible for monitoring compliance, acting on breaches and adopting policies and procedures. 

  1. Disciplinary guidelines

Like any form of discipline, it’s there to deter bad behaviour, in this case, non-compliance. By having this in place you create consequences for non-compliance within the workplace, and you deter future problems from arising. A compliance program will need disciplinary guidelines that are clear and support the standard of conduct.  

If there is some issue that arises and goes against company policies, a compliance program will have disciplinary guidelines in place to ensure that the problem is dealt with and doesn’t arise again. These guidelines should be constantly referred to throughout the year to ensure everyone is meeting standards, regardless of the person’s role in the company.  

  1. Commitment from Leadership Team

For a compliance program to work it needs the engagement of everyone in the business, especially the senior management and Board.  For Financial Services firms this is critical, as senior members of the business may be held accountable for failings in compliance and breaches of regulation.  This could include financial penalties, custodial sentences and a ban from working in regulated firms. 

It can be difficult for business leaders to balance compliance with profit and other business needs.  A well-defined compliance strategy should properly assess risks and ensure appropriate prevention, mitigation and monitoring practices are in place to manage risks and compliance without unnecessarily hampering business growth. 

Business leaders need to be fully engaged with compliance for this to happen.  It is senior members of the business that have an understanding of the bigger picture, business priorities and plans that are essential in developing an appropriate and balanced approach to compliance. 

  1. Monitoring and auditing

A compliance program should include the regular internal auditing and monitoring of a business. By creating an annual plan, a committee can weed out any particular areas that are likely to be a risk, audit in advance, and regularly review the program to reflect new findings.  

Ongoing reflecting on the program will ensure that the program addresses any issues that might arise and know how to handle the situation should it arise, sustaining the business on a sustainable program.  

  1. Training and education

With the compliance program straightened out, it will need to be communicated to the staff and team leaders to ensure that everyone is complying with the standards of the business. This might mean retraining, and definitely should be incorporated into the onboarding process for new hires.  

Generally, at minimum, retraining to keep up with compliance should occur annually, although firms should check the guidance and regulation with respect to different roles. It should be part of the job requirements to keep up with compliance issues and is recommended that teams attend conferences, read articles, and use professional networking to keep up with the modern compliance issues that need to be addressed as appropriate.  

  1. Effective communication

All of these points about compliance rely on effective communication. What is right and wrong might not be obvious to everybody in the team, who perhaps aren’t clued into what a micro-aggression is, or what effect a substance might have on the local environment, for example.  

A compliance committee’s role is to ensure that the compliance program is effectively communicated to the entire workforce. Officers should keep themselves visible and available for comment, ensure confidentiality, encourage feedback, and communicate a safe space with methods for anonymous and good-faith reporting.  

With these seven pillars of a good compliance program remembered, there should be fewer issues arising in the business that could result in consequences down the line.  

  1. Business Continuity and Resilience

Business continuity and resilience are important factors to consider in your compliance structure.  Operational disruptions and the unavailability of important business services have the potential to cause wide-reaching harm to your business and consumers.   

For financial services firms, continuity through these disruptions is an important part of the compliance framework.  But firms also need to consider the potential risks to their compliance measures and monitoring should their continuity plans need to be put in place 

Consider the impact of covid and the sudden requirement for home working.  Compliance doesn’t just cover the ability to respond to lockdowns, but also the ability to ensure that your compliance programs continue to be effective in this situation.  Those procedures are followed, activities are monitored, additional risks identified and responded to, training continues etc. 

Following the pandemic, regulators are putting more emphasis on business continuity plans. They are scrutinising them more carefully to ensure they are adequate.  And regulated firms also need to ensure this includes wind-down plans; if the business needs to close how can it be done in a way that still ensures consumers are protected and regulations aren’t breached. 

All businesses will benefit from an effective compliance program.  However, for financial firms, it is vital to ensure that you have appropriate and balanced practices in place to meet regulations and to protect your firm and consumers.  Ensuring the right balance is essential; too onerous and your compliance costs will rocket whilst hampering your growth and profit; too loose and your business and senior team risk enforcement action and serious reputational damage. 

Neopay are market leaders in developing and adapting compliance programs for e-money and payments firms in the UK and EU.  If you would like further information and advice, please contact us to see how we can help. 

 

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