Detailed Analysis of Regulation and Compliance in Finance

This report provides a detailed discussion of the significance of the compliance function within the financial service sector, particularly in the context of global and emerging regulatory issues. It explores various types of compliance risks faced by organizations and the specific controls implemented to mitigate these risks. The report highlights the scope of quality compliance monitoring programs and details the step-by-step process of identifying and escalating breaches. Furthermore, it emphasizes the importance of short-term training programs in enhancing employee awareness of compliance programs. The report covers topics such as the evolution of the compliance function, the management of compliance risks through lines of defense, the impact of regulatory compliance on financial institutions, and the importance of a structured compliance function. It also examines various compliance risks, including internal regulations, legal and contractual issues, and failures to comply with laws and regulations. The report stresses the importance of a risk-based approach to compliance, resource allocation, and the role of compliance professionals in maintaining objectivity. It also details the components of a quality compliance monitoring program, the process of identifying and escalating breaches, and the essential elements of a successful compliance training program.

Running head: REGULATION AND COMPLIANCE
Regulation and compliance
Name of the Student
Name of the University
Author Note

REGULATION AND COMPLIANCE
Introduction:
The study presented below gives a detailed discussion of the significance of the
compliance function in the financial service sector. This has been explained in the context of
global and emerging regulatory issues and concerns. There are several types of compliance
risk faced by organization with the organization implementing specific control for the
mitigation of such risks. Furthermore, the quality compliance monitoring program has a
wider scope that has been discussed in detail. In addition to this, the identification of breaches
and escalation of the same to specified personnel is explained step wise. Employees are better
aware about the compliance program with the help of short term training program (Asenova
et al. 2015).
Discussion:
The culture, governance and the standards across the whole financial services industry
particularly banks have come under the spotlight resulting from the combination of the global
financial crisis, misconduct in relation to foreign exchange benchmarks and LIBOR along
with mis selling of payment protection insurance. The regulatory, supervisory and political to
these responses have been intense and far reaching. However, some of the aspect of
governance of regulated firms and regulatory landscape has remained untouched. Substantial
resources are being devoted by the major financial institutions such as banks with growing
regulatory demands. The prime objective of compliance function is to ensure that the
compliance of business rests with the owner, senior executive management and board of
directors in the absence of board (Bauer and Bernroider 2015).
Risks associated with compliance can be managed through a clear delineation of
compliance functions and responsibilities of chief compliance officer. Risks can be managed

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through the apportionment of responsibilities between lines of defense. There exist three line
of defense with first line typically comprising of business, second line being the control
function and third being the internal audit. Evolution has been witness in the advisory aspect
of the compliance function where it is confined to assurance and monitoring. There is less
evidence between the demarcation between compliance function and assurance because of
the fact that the function is solely involved with assurance and monitoring.
Financial institutions such as banks have been undoubtedly affected by regulatory
compliance in some challenging ways such as difficulty in delivering the great customer
experience and increasing cost of service (Tucker 2017). With the evolvement of regulatory
environment, there is a major opportunity for the compliance function to get ahead of the line
by implementing changes to the operating processes and its model and thereby delivering
better oversight quality leading to increase in efficiency. Such shift would be successfully
made by banks that enable them to enjoy a distinctive source of competitive advantage by
way of reducing structural cost, delivering better service and important de risking the
operations. Over the years, the structure of compliance function is in great focus adhering to
either centralized or decentralized model. It should have the necessary resources for
undertaking the responsibilities so that relevant assurance is provided to the business. The
compliance structure of the firm is challenged by the regulator due to the increased
supervisory focus by the regulator on firms (Senger 2018).
The changing regulatory landscape can be navigated by encompassing open dialogue,
fostering relationship and ongoing talent that helps in mitigating the potentiality of
misrepresentation (Mills and Haines 2015). There is an increase reliance of financial
institution on the compliance function that helps them in properly interpreting and applying
any emerging legislation that arises from European commission. It is required by the firms to
have a clear idea of role of the compliance function which is clearly understood and

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articulated throughout the business (Vovchenko et al. 2017). Therefore, they intend to strike a
balance between maintaining effective and robust compliance function and reducing
overheads.
Compliance risk or regulatory risk is the issue faced by the financial service or
organization that results in material financial loss or loss to the reputation of organization.
Some of the compliance risks that are faced by the financial sector are as follows:
Internal regulations- Compliance risk arises when the organization fails to comply
with the internal regulations and policies and industry related code of conducts that poses
damaging threats leading to material loss, financial loss and voided contracts. In this type of
compliance risk, there is failure on part of organization to comply with the internal
procedures and policies, code of ethics, organizational system and authorization system. In
addition to this, there is a loss on part of company leading to lose their future business
opportunities and reputation (Barkow and Takahashi 2017).
Legal and contractual- In this type of compliance risk, organization fails to comply
with the corporate governance code, information on health and safety and corporate criminal
liability, anti corruption policy, privacy and antitrust. Organization oversees the monitoring
of such risk to which the business is exposed (Martin 2015).
Laws and regulations- Failure to comply with the passive and active contract and
any claim contract or litigation results in compliance risk associated with regulations and risk.
It is recommended that a risk based approach is adopted by the compliance that would
help in recognizing the different regulatory issues and different areas of business carrying
different level of business risk. For managing compliance risk, it is required by the firm to
prioritize and allocate their resources to the most needed areas that would help in fostering
greater productivity. In addition to this, firms should take measures that help in maintaining

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the risk of non compliance at a level that is not threat to the interest of creditors, shareholders
and depositors and to the financial stability of business. Organization on behalf of employees
should take every possible effort to comply with the internal regulations and act.
The compliance regulation should work closely with the business for anticipating
their needs in relation to the compliant solutions. Moreover, the role in reducing the level of
regulatory risks can be performed by maintaining sufficient objectivity and independence.
When dealing with the significant issues, the professional of compliance have an obstacle in
achievement of the objectivity. The control function and the compliance risk management
should be independent when viewing the operational side of the financial institution. Stakes
of compliance risk is higher in event of adverse outcome that requires full integration of
modern compliance framework with operational risk view of the world. The resources
assigned to the compliance function should ensure that there is adequate coverage of all the
establishments (Baxter 2016).
A compliance monitoring programme is driven by the assessment of the compliance
risk of the firm and is proportionate to the complexities and scale of business. Compliance
monitoring is conducting investigation and supervision for verifying compliance and intends
to encourage behavior that leads to promotion of compliance. Quality compliance program is
the program of disciplinary function that helps in ensuring that violation of rules leads to
consequences and the enforcement of such programs helps in deterring any future violations.
It was found that development of quality compliance monitoring program emphasizes on the
preventive aspects of mechanisms by giving sufficient considerations in all reporting process
stages. Such compliance monitoring program helps in enhancement of confidence of
investors, corporate transparency and capital market integrity and thereby contributing to the
sustainable development and financial stability (Borley and Page 2016).

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The scope of such reporting mechanism would cover the whole reporting chain for
addressing the reporting process comprehensiveness. Compliance monitoring takes into
account three dimensions that are audit area, corporate reporting and professional
accountants. The objective of such monitoring program is to address the issues that are
common across the dimension followed by the discussion on the challenges and specific
arrangements. The enforcement mechanism and compliance monitoring contributes
significant to the principal means. One of the critical factors ensuring proper functioning of
effective enforcement mechanism and compliance monitoring is the principle of
independence (Barday 2017). It is required by such program to conduct their activities in a
fair and objective manner that is free from any undue influence stakeholder, regulated entities
and participants of market.
The process that is followed for the identification of breaches and exception and
escalation to specified personnel is as follows:
 Reporting of all the significant breaches is done through the complain portal of the
company which is directly accessible from the home page. Any other escalation or
breaches can be reported either directly through the portal or to the relevant manager
(Bauer et al. 2017).
 It is ensured by the administrator of complaints portal that the notification of the same
is received by relevant manager and compliance officer is informed about the same.
 Escalation of notification of breaches is done according to the Incident alert matrix.
 The relevant compliance officer is then notified about the incident of compliance
breach after which it is identified by the account officer for a process or activity.
 The relevance compliance authority prescribes the process of resolving and managing
the non compliance and the resolution of breach is done by the relevant manager after

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which he is advised by the compliance officer in relation to the obligation to
compliance (Ayadi et al. 2016).
 In the next step, the compliance breaches is analyzed and monitored by the
compliance officer that helps in determining systemic issues and trend and
accordingly recommending action plan.
 Regular report on the compliance breaches is provided by the compliance officer after
whom the random checks are initiated by the compliance services (Austin and
Kusumoto 2016).
 In the last step, report about any improvement in the compliance framework is
provided by the compliance framework that will help in improving the process and
facilitating learning within the group of compliance officer (Flood et al. 2016).
Training is considered as an essential factor in ensuring that the employees are able to
perform their job and duties in a compliant manner. Integration of compliance training into
the training related to the core job functions is effective. Employees are able to take
ownership of their actions which is entailed by the effective compliance training program.
This is indicative of the fact that each employee has contribution in the failure or success of
the program. Employees are able to create better awareness of the compliance program when
short term training program becomes an obligation. They with the help of effective
compliance program are able to understand the reason behind the policies, showcasing their
corrective actions and taking preventive risk strategies. There are six essential elements that I
involved in the compliance training program comprising of accountability, executive
commitment, support and training, value and alignment, end user engagement and value
measurement.
The effectiveness of compliance training program is somewhat difficult to measure
and a true sense of effectiveness of program is given by “somewhat confident” or “not

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confident”. Tracking of the trend over time can be done in an effective way by using
internally focused measures such as internal audit findings, whistleblower hotline calls and
completion rates of training program. The reason for the surge in hotline complaints might be
because of better understanding of the conduct expectations or enhanced awareness of hotline
instead of increased infractions through the roll out of short term training program.
Confidence in the effectiveness of training program also takes into account the measures that
are externally focused such as recurring risk assessment, independent evaluations and any
other benchmark (Steiner et al. 2018).
The impact and the effectiveness of understanding about such short term training
program seem to be daunting with its implementation. It can be said that the best compliance
training program should not operate independently or as a separate function but they should
be integrated into the core strategies of business. A comprehensive approach should be
adopted using such training program so that there is alignment of employees to the high
standard ethical behavior at all the level of organization (Cohen et al. 2017).
Conclusion:
Both at the national and international level, the debate on the compliance risk
management are well under way. The entire gamut of compliance risk runs by the compliance
function as they have been set to play an increasingly important role at the regulated financial
institutions. Compliance should form an important part of the culture of corporate and it
should be ensured that there is continuous effort on part of organization. Moreover, the risk
associated with compliance should be more effectively managed and this can be done by way
of short term employee training.

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