Risk and Compliance Must Take its Place at the Top Table

While risk and compliance may not always be considered the most interesting or exciting area of business, particularly within financial services, recent history has shown just how important an area this can be.

Its importance is certainly not lost on financial services CEOs, with almost half (48%) of those surveyed stating that senior managers should be spending between 20% and 40% of their time focusing specifically on their risk management and compliance function. Worryingly, almost one third (31%) of the same group admitted that this wasn’t close to being achieved.

CEOs are not alone in their worries, nearly half (43%) of Chief Risk Officers (CROs), surveyed said that senior management is not spending anywhere near enough time focused on this area. Strong business performance will always retain a high level of importance for CEOs and board members, but senior management need to be well versed and have a strong understanding of risk and compliance if any business is to be effective.

With regulation being reviewed on a regular basis, non-executive directors and senior managers need to understand their implications and also consider what questions they should be asking of their CEOs. By understanding the need for risk and compliance, business leaders can and will work with lawmakers to improve transparency and, in turn, restore consumer confidence. However, many of these executives still have strong reservations around the challenges involved in building next-generation regulation into effective business processes.

While managing external risk and compliance is of vital importance, internal compliance and risk procedures should not be underestimated; three quarters (77%) of GRO survey participants understood the importance of this and felt that investment in internal compliance arrangements not only benefits the day to day running of the business but also strengthen the reputation and brand equity. A similar number (65%) believed that investment in internal compliance arrangements and procedures can increase competitiveness over the longer-term.

While the insight is invaluable, lessons must be learnt from this and consequently a tighter focus on risk management at board level must be adopted with benefits that outweigh their initial purpose. It is extremely worrying that CEOs do not believe enough time is being spent on risk and compliance and this revelation should act as a wake-up call for any firm that wants to achieve clarity and greater transparency, as well as restoring consumer confidence and ultimately improving competitive performance.

Therefore, with the tide of regulation continuing, keeping up with related compliance requirements is challenging, even for global teams with significant resource. Whilst strategic planning for these changes is an ideal, realistically managing incoming changes takes up a considerable amount of time and effort.

Add to this the fact that we are seeing many investors focus on management and operational due diligence, alongside financial due diligence, it is clear that boards are typically spending more time understanding the role of compliance in protecting brand value of firms.

Compliance teams may want to look to educate management as to the key questions they might want consider regarding risk and compliance, so that they have an awareness of what they should be looking for. This may include assessing firm readiness for mock regulatory reviews, which can often highlight areas for improvement in process and systems.

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