This article provides clarity on what a compliance management system is, what elements it includes and what benefits an effective compliance management system brings to companies.
Compliance is not only essential for business success, but it can also help ensure organisational resilience. In the business world, compliance is the adherence to laws, regulations, standards, and internal rules of behaviour. Within the firm, compliance management is the key instrument for ensuring law-abidance and is a crucial part of good, diligent management.
In general, compliance management can be defined as the process of determining the adherence of business processes and systems to relevant laws and regulations, which emerge from legislation and regulatory bodies, standards and code of practices, internal policies and business partner contracts. It aims to detect and prevent corporate misbehaviour, minimise the damage of arising issues, prevent their recurrence, and improve business and control processes.
Compliance is non-negotiable for businesses. The consequences of non-compliance can be severe, often involving corporate sanctions, product recalls, personal liability for management and reputational damage. The responsibility for ensuring a company is in compliance rests with the company’s board of directors and management.
A compliance management system (CMS) includes policies, procedures, processes, monitoring, testing programs, and a compliance audit function concerning compliance with all applicable laws and regulations.
A compliance management system helps a company:
An effective compliance management system comprises three interdependent elements: board and management oversight, compliance program and compliance audit. When all three elements are strong and working together, an organisation will be successful at managing its compliance obligations and risks now and in the future.
The board of directors is responsible for developing and administering a compliance management system that ensures compliance with all relevant laws, regulations, policies and standards. Some of the key actions that the board and senior management may take include:
Regardless of size or business complexity, the first step the board of directors should take in providing for the administration of the compliance management program is the designation of a compliance officer. In larger or more complex organisations, the compliance officer may allocate all their time to compliance activities. In smaller or less complex firms, where staffing is limited, a full-time compliance officer may not be required. Instead, the compliance responsibilities can be divided between various individuals by type of regulation.
A good compliance program is essential to a company’s efficient and successful operation. A compliance program often includes the following elements: policies and procedures, training, monitoring and consumer complaint response.
The compliance program represents a planned, organised effort to guide a company’s compliance activities and an essential source document that acts as a training and reference tool for all employees. If properly planned, implemented and maintained, the compliance program can prevent or reduce regulatory violations and provide cost efficiencies.
No two compliance programs are the same. So, when creating a compliance program, the following should be considered:
The formality of the compliance program is less important than its effectiveness. This is especially true for small organisations where the program may not be in writing, but an effective digital system has been implemented that ensures overall compliance.
A compliance audit represents an independent review of a company’s compliance with relevant laws and regulations and adherence to internal procedures and policies. The compliance audit helps senior management ensure ongoing compliance and detect compliance risk conditions.
The board of directors determines the scope of the compliance audit and the frequency with which is conducted. It may be performed once a year or may be ongoing where all products and/or services, all applicable operations, and all departments are addressed on a staggered basis. An audit can be performed “in-house” or can be contracted to an outside company.
The audit findings are directly reported to the board of directors. A copy of the audit report is given to the compliance officer to address noted weaknesses and required changes to ensure full conformity with the laws and regulations.
Companies adopting innovative technologies for managing their compliance activities and processes can enjoy several benefits:
A sound regulatory compliance management system can enable any organisation to remain profitable in today’s dynamic environment influenced by industry consolidation, emerging technology, a convergence of financial services, and market globalisation.