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Compliance Software Technology & Architecture

Compliance Management: What It Is & Why It’s Necessary

The regulatory landscape is rapidly evolving, placing new demands on businesses and their compliance teams. Compliance management solutions have the power to help compliance officers stay one step ahead of emerging regulations—Lauren St. Armand, Head of Marketing at StarCompliance, is on hand to show us how.

The modern business environment is complex, to say the least. In addition to rapid technological innovation, heightened customer expectations, globalized operations, and supply chain disruption, organizations also face an ever-growing web of regulations, laws, and industry standards. Adhering to these various compliance requirements is not only a legal obligation, but essential to maintaining the trust of customers, business partners, and stakeholders.

In light of these conditions, organizations need to develop robust compliance management strategies and leverage the right technology to close compliance gaps, safeguard their reputations, maintain stakeholder confidence, and avoid costly penalties.

What is compliance management?

Compliance management refers to the collective policies, protocols, and processes an organization uses to ensure compliance with the various laws, regulations, and standards that govern its industry. Proper compliance management typically involves:

  • Implementing robust data security measures
  • Conducting routine risk assessments and internal audits
  • Closely monitoring day-to-day business operations to identify anomalies and corporate risks
  • Developing compliance training programs for employees
  • Creating a reporting structure for suspected violations
  • Defining standard procedures for incident management
  • Maintaining accurate and comprehensive records

Organizations are increasingly turning to digital compliance management solutions to automate many of these responsibilities, which enables them to reassign employees to tasks that require human reasoning and planning and to optimize their compliance efforts. The various compliance management solutions on the market today are collectively referred to as regtech, short for “regulatory technology.”

Why is compliance management important?

From delivering seamless online experiences to their customers to automating core business processes to enhance efficiency, organizations across all industries—including financial services—have gone digital. While digitization creates opportunities for innovation and advancement, it also introduces a degree of risk around data privacy and security. Regulatory authorities and legislators have responded accordingly, drafting new laws, regulations, and standards in the interest of protecting consumers and fair trade.

There are real consequences for organizations that fail to comply with these laws and regulations, not only in the form of financial or civil penalties, but also in reputational damage.

Compliance management—and compliance management solutions—play a vital role in helping organizations protect their reputations and their finances. This makes it easier for organizations to adhere to legal and ethical standards, ensure transparency and accountability, and enhance overall corporate governance.

5 regulations organizations need to be aware of

There are several rules and regulations organizations should be aware of when developing a compliance management strategy or implementing compliance management solutions:

Foreign Corrupt Practices Act (FCPA)

The FCPA is a United States federal law enacted in 1977 to combat bribery and corruption in international business transactions. The FCPA prohibits U.S. companies, foreign companies listed on the U.S. stock exchanges, and individuals from offering, promising, or providing bribes or other improper payments to foreign officials, political parties, or candidates in order to obtain or retain business advantages.

The FCPA also imposes accounting and record-keeping requirements to ensure transparency and accuracy in financial reporting. The law aims to promote fair and ethical business practices while protecting the integrity of international commerce.

Bribery Act 2010

The Bribery Act 2010—also known as the United Kingdom Bribery Act—is comprehensive anti-corruption legislation enacted by Parliament in 2010. Designed to prevent bribery and corrupt practices both within the UK and internationally, the Act outlines the following four offenses:

  • Offering, promising, or giving a bribe
  • Requesting, agreeing to receive, or accepting a bribe
  • Bribing a foreign public official
  • Failure of a commercial organization to prevent bribery

The Bribery Act broadly applies to individuals, businesses, and public officials and establishes strict liability, meaning there is no requirement to prove corrupt intent. The Act has far-reaching implications, encouraging companies to implement robust anti-bribery policies and procedures and promoting ethical business conduct.

Gifts and entertainment regulations

Gifts and entertainment regulations collectively refer to an array of laws, rules, and regulations that govern the giving and receiving of gifts, hospitality, and other forms of entertainment in business relationships. These regulations aim to ensure ethical conduct, prevent conflicts of interest, and maintain transparency in business dealings.

Such regulations typically set limits on the value and frequency of gifts and entertainment, define acceptable practices, and outline reporting requirements. For example:

  • Financial Industry Regulatory Authority (FINRA) Rule 3220 prohibits a firm or individual from giving anything with a value of more than $100 to an employee or member of another firm with which the primary firm does business.
  • Municipal Securities Rulemaking Board (MSRB) Rule G-20 prohibits a regulated entity and its employees from giving, either directly or indirectly, anything with a value of more than $100 per year to a person—except for an employee or business partner—if that payment is related to the regulated entity’s business activities.
  • Financial Conduct Authority (FCA) Chapter 10 requires organizations to document, manage, and report conflicts of interest, including those associated with gift-giving and entertainment.
  • The U.S. Department of Justice has multiple rules pertaining to gifts and entertainment that apply to government agencies, including gifts from outside sources, gifts between employees, and gifts from foreign governments. Much like other regulations in this list, these rules are intended to prevent bribery and corruption and promote transparency within government.

Insider trading laws

In the U.S., the Securities and Exchange Commission (SEC) regulates insider trading, the practice of buying or selling stocks or other securities on material non-public information (MNPI). The reason for this is that insider trading has the potential to affect the price of the security, offering an unfair advantage to those with access to that information. For reference, “insiders” include directors, executives, or anyone who holds more than 10% of a company’s securities.

It’s important to note that not all insider trading is illegal. If an insider files the appropriate paperwork with the SEC—specifically, SEC Form 3, SEC Form 4, and SEC Form 5—any trading of company shares is then considered an insider transaction, rather than illegal insider trading. If, however, an insider does not complete these forms—or, if they share insider information with an outside party, who then acts on that information—they could be subject to civil or criminal penalties and fines of up to $5 million.

Although illegal insider trading has serious consequences for individual violators, it can also negatively impact the organizations they work for. Insider trading can damage a company’s reputation, undermine investor confidence, and discourage non-insiders from participating in the market, which can make it difficult for organizations to raise capital.

Free Guide: Best Practices for Detecting Insider Trading >>

Pay-to-play laws

The U.S. government enforces “pay-to-play” laws—laws that regulate political donations made by those who seek or hold government contracts—at both the state and federal levels. These laws aim to prevent political corruption and the undue influence of money in the political process, thereby ensuring fair and transparent government practices, promoting a level playing field for businesses, and maintaining public trust in the integrity of the political system.

Although pay-to-play laws primarily affect organizations in the financial services sector, it’s important that all companies be aware of them and factor them into their compliance management. Language and requirements for these laws may vary by jurisdiction, so it’s imperative that organizations familiarize themselves with their state’s rules and limits.

Major challenges companies face around compliance management

Nothing worth having comes easy—that’s just as true for compliance management as anything else. Though organizations need a compliance management strategy in place, creating that strategy can be challenging, given the inherent complexity of both the regulatory landscape and business operations.

Some common obstacles organizations face around compliance management include:

  • Compliance programs can be time-consuming and costly to develop, implement, and enforce. As a result, organizations will sometimes try to take shortcuts by utilizing compliance policy templates, which can lead to poor documentation and poorly defined processes. Without a clear compliance roadmap to follow, employees are less likely to consistently adhere to compliance policies and procedures, increasing the risk of non-compliance.
  • Many organizations continue to rely on manual processes and legacy systems to manage compliance. These manual processes are often inefficient and difficult to monitor and report on, can lead to human error and inconsistencies, and lack the scalability or adaptability needed to keep up with changes in the regulatory landscape. Legacy systems create many of the same issues, in addition to being expensive to maintain and incompatible with newer technologies that could help streamline compliance management.
  • The regulatory landscape is rapidly evolving due to technological advancements, market globalization, changing societal expectations, and lessons learned from past failures. The sheer volume and complexity of regulations can make it difficult for organizations to fully understand what their obligations are, to dedicate the necessary resources to maintain compliance, and to quickly update policies and procedures in accordance to changes in the regulatory environment.
  • In addition to regulatory complexity, organizations must also navigate internal complexity. Different business units and activities within an organization may be subject to varying regulations based on their function or geographic location, which can make it challenging for compliance teams to define universal policies and procedures. Departmental data silos further complicate things, preventing compliance teams from gaining a holistic view of compliance operations and identifying trends and gaps in coverage.

Why a software solution could be the key to compliance management

Organizations across all industries are increasingly turning to compliance software to solve their most pressing compliance management challenges. With the right compliance management solutions, companies can:

  • Automate basic tasks, enabling compliance teams to focus on building a culture of compliance, optimizing existing processes, analyzing internal compliance trends, and investigating anomalous behavior and compliance violations.
  • Easily track compliance efforts across all business units, departments, and activities.
  • Develop a better overall user experience, eliminating redundancies and unnecessary steps within compliances and designing customized experiences based on team, role, and seniority level.
  • Streamline the auditing process by tracking process changes and creating easily exportable reports that companies can use to demonstrate due diligence.
  • Use configurable rules engines to create custom rules that enable end-users to get pre-clearance faster for simple requests and automatically escalate more complex requests to the compliance team.
  • Create a single source of truth for all departments, thereby supporting compliance training efforts, increasing transparency, and promoting more consistent policy adherence.

In addition to these benefits, third-party compliance management solutions are routinely updated to reflect new regulations and advances in cybersecurity, to improve user experiences, and to facilitate mobile connectivity—all without taking a toll on a company’s internal IT team.

7 considerations when evaluating compliance management solutions

There are many compliance management software solutions on the market today. To find the right one for your organization, consider the following:

  • Pre-clearance: A compliance management solution should make it easy for employees to pre-clear activities by routing all requests through a rules engine that automates the decision process.
  • Surveillance: Compliance management software should use surveillance tools to analyze business activities and identify patterns or anomalous behavior that might prompt further investigation. This frees up valuable time for compliance teams, enabling them to focus on other responsibilities until the software raises a red flag.
  • Certification: The certification process can be time-consuming and frustrating for compliance officers, who often find themselves chasing down employees who wait until the last minute to verify that the information compliance has on file is complete and accurate. Compliance management solutions make it easier for compliance teams to collate employee data, but the best solutions create personalized experiences for employees, so that they’re only asked questions that apply directly to their situation.
  • Reporting: Compliance management solutions should aggregate data and report back to your compliance team in a succinct, actionable way. The software should organize data in such a way that senior management can easily spot trends, identify areas for improvement, and proactively allocate resources. The right solution will take this one step further, enabling end-users to create and manipulate reports in-application, saving them the hassle of exporting data to spreadsheets for further editing and analysis.
  • Flexible configuration: Finding the right compliance management solution can feel something like a “Goldilocks” situation—software needs to be structured enough to be effective, but also flexible enough for compliance teams to meet their company’s specific needs. When evaluating compliance management software, look for a solution that offers the flexibility to accommodate your organization’s own interpretation of relevant rules and regulations. This will save your compliance team from having to add manual processes on top of the software to compensate and reduce your risk of regulatory violations, as these extra layers can make it easier for things to fall through the cracks.
  • Consolidated view: With disparate data, compliance teams spend more time, energy, and resources trying to stay organized than they do actually staying compliant. That’s why the right compliance management solution should provide a centralized location where users can view all compliance-related tasks, documents, and resources, thereby making it easier to find whatever content they need, whether it’s information on gift approvals, trade notices, or certifications.
  • Usability: One of the most essential aspects of any compliance management solution is that it be user-friendly. The more intuitive a solution is to use, the more likely teams will be to adopt it. Organizations should also look for compliance management software with a corresponding mobile application; making the solution accessible via employees’ mobile devices further promotes adoption and consistent utilization.

Want to know even more about how to improve your compliance management strategy, or what to look for in a compliance management solution? Contact the experts at StarCompliance today for more information.


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