What role does the compliance officer fulfil today?The new regulatory reform is one that is forward-looking. It also requires a proactive approach to regulation and risk, and is the result of consistent poor outcomes that is addressed by tackling the root cause.
For the modern-day compliance officer, the new regulatory reform can be seen as a double edged sword in the sense that it highlights the importance of compliance as a control function, although it is not the reform’s sole intend.
It also raises the standard of compliance from a rule-based to a functional activity-based approach with regards to:
the identification and assessment of regulatory risks;
the monitoring of these risks; and
the guidelines that apply when reporting on the adequacy and effectiveness of the risks to the board and sub-committees.
In order for the regulator to achieve its objections with the regulatory reform, the role of the compliance officer also needs to change.
The compliance officer nowadays has to provide and facilitate ongoing coordination between the business and the regulator.
The compliance officer also needs to ensure that a risk-based approach is embedded within the methodology and framework i.e. where conduct risk is low, a light approach to regulatory compliance principles should be adopted.
This is evident in the following forms of regulation, amongst others, that require an even higher standard of oversight and direction from the compliance officer to bring reform about:
The Solvency Assessment and Management (SAM) framework, which seeks to establish a risk-based supervisory regime for the prudential regulation of both long and short term insurers;Treating Customers Fairly (TCF) which requires firms to evidence compliance with the six outcomes. (Non-compliance therewith will result in regulatory action being taken against the offending regulated firms); and
The Draft Board Notice 114 of 2014 proposing a governance and risk management framework for insurers, and which requires insurers to establish and maintain governance, risk management and internal control measures.
In light of the above, the question on every compliance officer’s lips should be: “How do you as a compliance officer adapt to and capitalise on the ever-chancing regulations?”
In my experience, the following is evidenced by compliance officers who employ an effective compliance risk management framework:
a thorough understanding of the key drivers and strategic vision of the business;
an ability to recognise key regulations that impact on operational risks;
an understanding of and an ability to communicate the consequences of non-compliance to the business in financial terms;
an understanding of the industry in which they practice, including acceptable and best practices;
an ability to engage frequently and informally with business.
Compliance officers should furthermore have the required soft skills to build relationships both from the top down as well as from the bottom up.
They should also be innovative with compliance solutions so as to provide a win-win situation for all.
Broadening training content to include the applicable King III principles, especially as it relates to leadership, integrity and ethical behaviour (the cornerstones of good governance) is also an important requirement that the compliance officer needs to meet.
So is linking business decisions to the strategic vision as well as the regulatory requirements that apply to the company.
Other capabilities of the modern-day compliance officer includes:
having the ability to show the value of compliance to the business in monetary terms;
making the most of the regulators invitation to engage in meaningful and solution-driven discussions; and finally
an appreciation of the fact that one operates in a skilled and professional environment that requires synergy and collaboration to meet the regulator’s objectives.
Given the above, it is evident that the role of the compliance officer is more important than ever before - not from a self-serving importance point of view, but from the viewpoint that the role one fulfils benefits both the individual customer and the industry as a whole.
Today’s compliance officers are both enablers of business and agents of change, providing holistic oversight, modest challenging and practical direction whilst embracing the evolving regulatory framework that:
supports financial inclusion and financial stability;
provides long term benefits from an image and reputation perspective;
enhances the protection of customers; and
improves the integrity of the insurance market as a whole.
That said, the regulatory changes we are seeing today are aimed at tightening regulation that relates to corporate governance, risk management and internal controls.
Cornea Matthee is Group Compliance and Risk Officer, Centriq Insurance
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