COMPLIANCE BOARD REPORTING
R&C: Could you outline what it is so important for a company to report to its board on compliance issues?
Johnston: For many years, compliance has been seen as a topic for ‘geeks’, at best, or, more frequently, as a burden to ‘real business’. Changes in regulatory approaches – increased scrutiny at a national and global level, heavier fines – and an emphasis on individual accountability, as exemplified by the Senior Managers and Certification Regime (SMCR), have, however, contributed to increased awareness of the impact of regulatory compliance on the way in which business is conducted. Almost all major pieces of recent regulation place the emphasis on board and senior management involvement and quality and demonstrability of decision making. In the UK, and elsewhere in Europe, regulators have set out specific rules pertaining to the definition of areas of responsibility, the approval of senior managers and individuals performing key functions and the individual accountability of such individuals. In simpler terms, this means that they could be personally held to account should something in their area of responsibility go wrong. Remuneration and incentives have also recently been placed under increased scrutiny and firms have been asked to demonstrate strong management and the ability to measure and control their impact on conduct and culture. Similarly, firms’ product and client governance frameworks, and the way in which the two interact, are the enablers of compliance with more than one piece of regulation, such as MiFID II, and are likely to continue to be the object of future regulation and regulatory challenge. In this context, compliance reporting to the board represents both a challenge and an opportunity. On one hand, those responsible for the production of such reports – the chief compliance officer (CCO) and the compliance function, in general – are faced with the task of making specialist information meaningful and relevant to non-experts. On the other, the opportunity to add value to the organisation is greater than it has ever been. Through insightful analysis and reporting, the compliance function can evolve from playing a reactive to a proactive role, and graduate from merely ‘ticking boxes’ to shaping the future of the organisation, driving strategy and decision making.
Jan-Mar 2019 Issue