As a major part of the revolutionization that is steadily taking over financial institutions, the issue of Compliance is becoming important at all levels — from national to global cadres.


Compliance management is crucial everywhere and in every way. Whether it involves data protection, user privacy or even physical safety, consumers depend heavily on the protection they can get from standards and regulations.


According to the fifth Thomson Reuters Regulatory Intelligence report on Fintech, Regtech and the Role of Compliance in 2021, a majority of compliance experts, approximately 70%, stated that the COVID-19 pandemic led to a higher dependence on technology for enhancing decision-making, monitoring performance, and managing risks. 


If you are seeking to learn how to evaluate the compliance processes of any institution, say even a bank or a fintech company, this is the article for you. But first, let’s tell you what you need to know about the concept of Compliance. 

What is Compliance and Compliance Management?


Compliance simply implies that a company conforms to the necessary regulations and laws that are stipulated for its operation. It involves both internal company policies as well as country-specific laws and regulations implemented by the regulatory authorities. 


It is believed that the trigger for companies to begin to adopt compliance was a series of scandals in the United States, especially during the 1970s. Arms manufacturer, Lockheed, through lobbyists, had paid off politicians in foreign nations to encourage them to procure fighter jets. This scandal made headlines in Germany, where it placed Defense Minister Franz-Josef Strauß and his party in a tough spot. In Italy, the Netherlands and Japan, Lockheed also attempted to influence the acquisition of its aircraft by offering payments that amounted to billions. The uproar that followed led to the establishment of the Foreign Corrupt Practices Act (FCPA) in the United States. In the years that came later, the matter of compliance continued to escalate in significance.


What then is Compliance management? It is the continuous process through which an organisation's managers monitor and assess systems, procedures and policies — to ensure that their employees comply with governmental laws and regulations, industry and security standards, as well as accreditation requirements. It requires that these managers organise, plan, lead and control a variety of activities to achieve these targets.

Two key areas in Compliance


Generally, there are two areas of importance when it comes to compliance in the workplace:

  • Corporate Compliance
  • Regulatory Compliance


1. Corporate Compliance


Corporate compliance is the approach employed by a company to guarantee that employees abide by its own regulations, procedures, and rules, as well as performance and behavioural expectations.


2. Regulatory Compliance


In this case, the focus is on ensuring that the employees keep to external policies, laws and regulations. A simple way to understand it is this: corporate compliance involves rules created within the organisation while regulatory compliance has to do with the rules outside the organisation. While the two may differ in their focus, corporate compliance and regulatory compliance are equally essential for assuring the safety of an organisation and its employees.

Recommended: Compliance Automation Tool: What is it and How does it Work?

Why is Compliance Management important for banks and fintechs?


Simply put, compliance is designed to keep organisations out of trouble. And for financial institutions like banks or fintech companies, this is a priority.


First, every financial institution wants to maintain a good reputation by all means. A single misstep is enough to tamper with the trust of your customers, so you need to do all it takes to avoid reputational damage. It can impact your credibility such that future products or services never get accepted. If you want to keep investors coming in, you need the reputation!


Apart from the need to maintain a good reputation among customers, there’s also the risk of losing a lot of money when compliance is not taken seriously. Call them fines, lawsuits and legal costs, security costs, but one penalty is enough to wipe out a company’s finances.


One study revealed that organisations can lose up to 4 million dollars in revenue as a result of a single episode of non-compliance. It furthermore revealed that proper regulatory monitoring can save companies over 1 million dollars. (GlobalScape's The True Cost of Compliance with Data Protection Regulations).


Bottom-line is this: non-compliance is more costly on any given day than setting up a good compliance structure.


How to set up a good Compliance Structure? 


For you to be able to determine if the compliance processes for a bank or fintech company are adequate, you have to first understand what a good Compliance management system looks like. 


For starters, it must be established that your approach to setting up a compliance management structure is chiefly determined by the standards you hope to meet, as well as the resources you have available. Having a good grasp of these will be the bedrock of your plan and will help you define and navigate through the roles, responsibilities and processes.


Here are basic characteristics you should have at the back of your mind while drawing up the plan:


1. Your plan should take into account all potential risks throughout the lifecycle of your services or finance-based products.

2. Your plan should be well understood by those who are to abide by the compliance workflow.

3. You should allocate responsibilities clearly. No one should be able to say they do not understand their job description.

4. You must be willing to work within the workflows you create, so you do not have unforeseen loopholes.

5. Where and when there are violations, be sure to point them out clearly.

6. Your plan should be updatable, to meet up with new policies, requirements, etc.


Now, let’s set up that workflow. Here are the important steps and activities that should make up a desirable, workable Compliance workflow (compliance processes). 


1. Thorough Risk Assessment


This is done based on how conversant you are with your company. You should identify potential pitfalls, how they can happen, how to prevent them and how to correct them if they ever happen. 


2. Create written policies, rules and standard operating procedures


This is key if you want your employees to work with one mind and one focus. It is the beginning of effective compliance.


3. Assign oversight 


You will need a Compliance officer. Such an officer will have to oversee, monitor and enforce your compliance processes. Some companies today even set up a Compliance Department or Committee headed by this officer, and together they make sure the system works.


4. Communicate the plan, and provide adequate training


Every employee at every level in a bank or fintech company — and every other company —  should understand your compliance program well enough to be able to implement it. You may need to create a regular training program to communicate your procedures properly.


5. Feedback is key: encourage it at all levels


You must actively create an environment that encourages prompt feedback from your employees. They should be able to ask questions, report issues, address ethical concerns, or even report fraudulent activities without fear of a clash back. 


6. Make provision for routine monitoring and audits


You need this for you to effectively measure the effectiveness of your system and/or to identify risks as quickly as possible.  Make provision for regular internal audits and also external ones. 


7. Enforce discipline and reward compliance


Make deliberate efforts to mete out discipline to anyone who fails to work with the compliance program. You can also reward those who faithfully follow the established standard operating procedures. Incentives work wonderfully well!


8. Be prompt about making corrections


If in the course of your monitoring/auditing, you identify violations, be sure to address them as quickly as possible.


9. Deploy automation


As banks grow, it becomes increasingly difficult to manage a compliance workflow manually. Automating your workflow will help to streamline your processes and ease your monitoring and reporting.

Recommended: Ultimate Guide to KYC and AML Compliance

What are the indices for evaluating compliance processes?


Understanding the way a compliance workflow should run, as discussed above, makes it easy to evaluate your processes. When it comes to evaluating your workflow, you should ask the following questions:


  • Are the established policies, procedures and processes well understood? Do my employees have a hard time jumping into the game? The feedback from your employees should help with this.
  • How often do I encounter violations in my workflow? Are these violations typically irredeemable? If your answer to both questions is ‘yes’, you likely need to rework your compliance management plan.
  • How’s our reputation among our customers? Do we receive more complaints than approvals? How willing are investors to do business with us?


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