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Compliance Integration

Compliance management is designed to minimise risk to a licensee’s operations including the risk of non-compliance with it’s obligations under the Corporations Act and licence conditions.

A Compliance plan sets out the elements for the establishing, implementing and managing an effective and measurable compliance program appropriate to the nature of the business.

The Plan should generally accord with Australian Standard 3806.

An effective compliance program, the performance of which can be monitored and measured must:

  • Aim to prevent, identify, and respond to, breaches of laws, regulations, codes or organisational standards occurring in the organisation and
  • Promote a culture of compliance within the organisation
  • Assist the organisation in remaining a good corporate citizen.

The plan sets out the essential elements of a compliance program.

The essential elements of a compliance plan are the structural, operational and maintenance requirements.

Structural Elements

  • Compliance Policy
  • Resources
  • Record Keeping
  • Continuous Improvement
  • Behavioural Content

Operational Elements

  • Management Responsibility
  • Identification and Rectification of Compliance Issues
  • Operating Procedures for Compliance
  • Implementation
  • Complaints Handling System
  • Reporting

Maintenance Elements

  • Commitment
  • Education and Training
  • Visibility and Communication
  • Monitoring and Assessment
  • Liaison

Compliance – a cost or a benefit? 

“The importance of a good governance system, a holistic approach to compliance, can not be overemphasised: in an increasingly responsive stakeholder environment managing regulatory risk and being committed to the principles of good governance is vital to overall strategic management”

– Compliance: A Business Enabler, Australian Compliance Institute 7th National Compliance Conference

Compliance that is approached holistically will add value to any organisation if it is applied consistently. The key challenge when dealing with compliance is embedding a compliance culture throughout the whole of the organisation. There are three simple but very important factors crucial in creating benefit through compliance:

Developing a clear and consistent communication process at all levels within the organisation that outlines its expected standards and of which compliance is integrated. This will ensure standards are visible, ongoing and embedded.

Integrating compliance-related key performance indicators in job designs. This may also extend to reward structures.

Developing a team-based approach where compliance is seen as a collaborative effort.

Organisations which embrace compliance within their business culture realise the benefits by enhancing the quality of business operations. This is achieved by providing clear guidelines and encouraging reporting of lax business practices or breaches. This increases the awareness of risks faced by the organisation and once addressed can provide them with a competitive edge in the market place.

The biggest risk and cost facing an organisation introducing a compliance program is running it in isolation of other management activities. Resources directed toward a stand-alone approach are immediately and invariably viewed as a huge cost because in truth it’s considered as an impediment rather than an opportunity to implement good business practice.

Professor Allan Fels, Dean of the Australian and New Zealand School of Government, says that a common perception of compliance among the business community is that it is done to keep regulators happy. He believes this view is short-sighted and considers compliance creating two main benefits:

  1. It will help to avoid breaking the law and suffering the consequences, thereby saving the company time, money and heartache; and
  2. A good compliance program can actually enhance a company’s “positive” business purposes (other than reactive risk management).
– Compliance programs: the benefits for companies and their stakeholder, Prof Allan Fels

Looking after the operational risks of any business is not a new concept for insurance brokers.

Prior to FSR brokers applied a number of good business practice principles but did not necessarily formalise the process. Compliance has forced them to identify and address risks to their business, articulate their strategies and document how they will proceed.

Compliance has benefited broking organisations by teaching them how to more thoroughly evaluate and justify decisions affecting the health and well-being of their business.

What are the potential risks to the organisation if no compliance program is in place? Obviously they would not have a licence under which to operate. They may also never realise the potential of their business.

The effect of compliance has forced principals to become better managers because the success of a business does not solely rely upon having a good relationship with customers.

Principals have had to consider more carefully the risks of their business operation. In today’s environment an organisation has an increased risk of:

  • Damage to its business reputation both from within the market place and from its customers.
  • The consequences of any breach which may range from fines to court action and potential withdrawal their AFS licence.

A demonstration of how the above can potentially affect the organisation was an enforcement action taken by ASIC against AIG. In brief AIG was found to have not fully monitored or corrected the inappropriate actions of authorised representatives.  The benefit of a rigorous and integrated compliance approach in this case would have saved AIG from substantial remedial costs and unwelcome media attention.

Those who continue to see compliance as a necessary evil and in isolation of the business will struggle in the future

Compliance has added cost to financial services organisations and there is no denying this fact. The question really is: do these costs outweigh the potential benefits?

The answer to date is a mixture of both. In the short term it was a definite and painful yes, but in the medium to long term it will be no.

It is also fair to say that some costs and benefits will be almost incalculable but nonetheless real.