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Demonstrating Compliance

Posted by Karl Schindler on 13 May 2019



trevor_graphOne of the most frequent questions we receive from firms interested in a shareholding and short-selling disclosure service goes something like:
"How can we quickly find all of the evidence showing that we’re in compliance with disclosure obligations for a specific company or on a given date?"

This is usually followed-up with further questions about where to go to view ownership levels of a given issuer and to determine how it was analysed, monitored, reviewed by senior staff, communicated to a regulator, and recorded!

 

According to an industry study among compliance experts, one of the biggest compliance management challenges is “difficulty in creating evidence of compliance”¹. Having been involved in compliance monitoring and oversight for over 15 years, I know that “monitoring” one’s obligations is only the beginning of a solid compliance programme. It's not enough to have systems and controls in place to check one’s obligations, one must maintain appropriate records and provide evidence that regulations were adhered to at any time historically.

One of the five key functions of a compliance department, according to the International Compliance Association (ICA), is “to monitor and report on the effectiveness of...controls in the management of an organisation’s exposure to risks (monitoring and detection).”² The importance of recordkeeping and demonstration of compliance monitoring can be revealed by considering a few areas:

  1. Management has responsibility to oversee their firm’s compliance programme and ensure that it remains fit for purpose - this requires that compliance officers have the facility to quickly and accurately obtain compliance monitoring results - ideally in one place.
  2. Internal auditors are often tasked with reviewing operational and regulatory risk controls and will almost certainly seek records which prove that appropriate controls are in place and that processes are adequate relative to specific regulatory requirements.
  3. In their supervisory role, a regulator is likely to question and demand a high level of detail related to compliance processes, underlying data, and evidence of operational control and oversight. Such requests may arise at any time stemming from a regulator’s supervisory and enforcement powers.

While many in the industry continue to rely on spreadsheets (“spreadsheet risk” permeates the financial services industry!) or bespoke in-house systems, they’ve found such approaches incapable of storing all of the necessary detail in one place: from exposure calculations, internal commentary, evidence of review and sign-off from senior managers, and records of the disclosures filed (or proof that one is not required to file) with regulators.

At FundApps, we’ve relied on our clients - a community of compliance officers and regulatory experts - to drive the development of our Shareholding Disclosure service. This has led to the inclusion of a complete and robust audit trail, and the ability to access any historical disclosure result with ALL relevant workflow, signoff, and the full detail of how our rule algorithm included and aggregated assets.

Management Oversight

With a growing focus on ensuring senior managers (for example the FCA’s Senior Managers Regime) and compliance officers are responsible (and in some cases personally liable) for the adequacy of their firms compliance programme, an ability to quickly and accurately provide all relevant details regarding one’s compliance controls and ownership levels across a company is vital. Having this information in one place shouldn’t be seen as an optional feature, but a necessary one. If your CCO, CRO or oversight committees who have a regulatory duty to oversee compliance asked how shareholding disclosure compliance was demonstrated, are you ready to answer?

Internal Audit

Any auditor worth his or her salt will ask for a demonstration that controls and procedures are effective and adequate. The standards of good governance require appropriate recordkeeping and care to reduce operational and compliance risk. It’s not enough to setup a monitoring system. A host of compliance regulation refers to establishing and maintaining appropriate records to demonstrate compliance. If internal audit was to ask your compliance team to evidence specific controls and procedures or demonstrate which disclosures were made (and why) on a specific date, are you able to answer this question quickly and thoroughly?

Regulator Supervision

As the profile and importance of compliance increases every year along with more fines being levied, the possibility of an intrusive supervisory visit or investigation from a regulator remains high. The ability to instantly access comprehensive information about your firm’s positions, and the contribution of each financial instrument to one’s disclosable position is critical. At the same time, for disclosures that were identified and filed, being able to access the documentation and disclosure confirmations in one place demonstrates a high level of responsibility over shareholding disclosure compliance.

Today, would you be completely ready to answer probing questions about your disclosure obligations if faced with a queries related to all exposures to a given issuer on a specific date in the past? How long would it take to collate this information and is it all in one place?

At FundApps, we strive to ensure our clients can answer yes to these questions and are in a position to confidently demonstrate a high level of control over both operational and regulatory risk, and to do so in one, user-friendly system.

Don’t let your firm be caught shuffling through paperwork or searching digital archives for the right spreadsheet, hoping that the data is understandable and calculations up to date with ever-changing regulation. Having peace-of-mind for a compliance officer, the board of directors and the company as a whole means knowing that compliance monitoring is evidenced and accessible after only a few clicks.

Contact us today so we can help competently manage and evidence your regulatory obligations.

 

¹Eggert, Mattias. Compliance Management in Financial Industries: A Model-based Business Process and Reporting Perspective (SpringerBriefs in Information Systems). 2014. p.8

² https://www.int-comp.org/careers/a-career-in-compliance/what-is-compliance/ 

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