Compliance monitoring

 

With the regulatory environment continually evolving, the need for a robust approach to compliance is critical to ensure a firm is meeting its regulatory requirements and managing its regulatory risk. Central to this is a considered, independent and risk-based compliance monitoring methodology; it allows firms to measure their business decisions against the associated risks.

In recent years, principles-based regulation, a growing regulatory focus on customer outcomes and the increasing threat of financial crime mean that having a clear view of compliance in your firm is more important than ever.

An effective compliance monitoring function should have a deep understanding of its firm’s business model, provide assurance that the firm is complying with FCA regulatory requirements (including the detailed rules, overarching principles for business and legislation) and have the authority to drive change and influence business practice.

As part of the ‘second line of defence’, any issues or risks identified by the function should be raised with the appropriate business units and clearly reported to the relevant management structure. This is done through the use of robust and accurate management information (MI) and the continuous monitoring of controls.

FOCUS ON INDEPENDENCE FOR BEST RESULTS

Critical to the effectiveness of a compliance function, and its ability to execute a robust monitoring programme is the ability to carry out assurance work from a position of independence. The function must be able to identify key risks and manage them in line with the firm’s risk appetite – in a way that both enables the business to meet its objectives and satisfy regulatory expectations.

In today’s challenging regulatory environment, compliance teams need to have deep regulatory knowledge combined with business awareness in order to take a compliant and proportionate approach to risk. Firms’ senior management should therefore ensure their team is adequately resourced, suitably qualified and independent from the business.

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