Regulatory compliance is one of the central components of our GRC solution – the compliance module has even been endorsed by the American Bankers Association – thus it is a topic we are very interested in. It is fascinating how important regulations are and how much of an effect they have on the way our world works. When financial regulations work right, they can uplift countries out of poverty, and when they do not work right, they can bring down economies all over the world, as we all saw in the last financial crisis. So, what exactly is compliance and why is it so crucial to our economic system?

What is Regulatory Compliance?

Regulatory compliance is the function that organizations have to establish procedures that ensure internal and external regulatory compliance. This includes all functions that allow companies, through appropriate procedures such as the establishment of policies of action in certain matters, detect and manage the risks of non-compliance with regulatory obligations, mitigate the risks of sanctions, and losses that derive from such defaults.

Compliance includes, among other topics: data protection, the KYC (Know Your Customer), the law of the stock market, the prevention of money laundering, internal codes and regulations of conduct, corporate social responsibility and reputation. In addition, the laws, rules and standards of compliance come from several sources: legislation, rules and regulations issued by legislators and supervisors, market conventions, codes of practice promoted by industry associations and internal codes of conduct, so they can go beyond what is purely legally binding and encompasses broader standards of integrity and ethical conduct.

The Importance of Regulatory Compliance

Regulatory compliance is one of the most important tools the government uses to ensure that the country is being run correctly. These regulations are created by experts of the industry and a lot of research goes into them. People and businesses that will be affected by the regulations are also consulted when the regulations are being made. All this is being done to ensure that the regulations can achieve their goal.

Let’s look at how the financial industry works. Regulations allow the government to ensure that the financial sector contributes positively to the economy, instead of harming the economy. Think about environmental regulations – they make sure that businesses take care of the environment. Without environmental regulations it would be perfectly legal to destroy nature to earn money. Our whole environment would have much more pollution and there would be many health problems in the society. Environmental regulations limit these negative externalities. Financial regulations work the same way. They make sure that no financial business ends up creating negative externalities just to generate a profit for itself.

Regulatory Compliance Department Functions

Many financial businesses have departments dedicated to regulatory change management and regulatory compliance. The functions of this department are:

  • Identification: Identify the risks that a company faces and advise on them.
  • Prevention: Design and implement controls to protect a company from those risks.
  • Detection: Monitor and report on the effectiveness of controls in the management of a risk exposure of companies.
  • Resolution: Resolve compliance difficulties as they occur.
  • Advisory: Advise the company on the rules and controls.

Along with the development of compliance departments in companies, the figure of compliance officers has also become common, which would be the person responsible for supervising and managing all issues related to compliance and what the jurisdiction may have a legal or criminal responsibility and whose main functions are: the identification of risks, analyze statutory and regulatory changes, determine preventive and corrective measures, provide training to managers and employees so that they know and apply all the rules and periodically review the operation of the procedures.

The importance of regulatory compliance means that businesses need all the tools they can get to manage it, which is why regulatory compliance software is so common in the financial sector. Want to see what regulatory compliance software can do for your business? Get in touch with our team to find out.