Understanding the regulatory landscape is essential for any effective corporate compliance program.
According to Ascent, without a clear and accurate regulatory lifecycle management (RLM) system, companies cannot design or implement functional compliance strategies. RLM is pivotal in identifying applicable regulations, a task foundational to subsequent assessments, designs, and implementations within the compliance framework.
This process starts by mapping out the regulatory landscape, or what some might refer to as creating a regulatory inventory. Yet, this initial step is fraught with challenges, including determining the full spectrum of regulatory requirements across different jurisdictions and understanding the nuances of ‘soft’ regulatory actions such as SEC No-Action Letters in the US or the UK’s ‘Dear CEO’ letters, which significantly shape compliance practices.
The regulatory environment is never static; it evolves continuously, presenting significant challenges for legal, risk, and compliance professionals. New regulations emerge, existing ones are amended, and interpretations from litigation can reshape compliance obligations. Traditional methods to manage this flux—such as employing large teams or external experts—are costly and often lead to gaps in compliance due to the manual nature of the processes involved.
As a result, many forward-thinking companies are increasingly adopting automated solutions to maintain a real-time, accurate view of their regulatory responsibilities, helping to mitigate risks and align with compliance standards efficiently.
Developing a comprehensive regulatory map requires understanding the business activities, identifying the jurisdictions where these activities occur, and recognizing all applicable regulatory bodies and sources of regulatory obligations. This includes not only formal legislation but also non-binding guidance which, in many jurisdictions like Europe and Canada, forms a critical part of the regulatory framework.
Once the coverage is established, the next critical step involves compiling and continually updating the full set of current regulations applicable to the company, a process that requires meticulous attention to detail to discern which parts of voluminous regulations directly impact the company.
Managing regulatory change is categorised into tracking near-term, well-defined changes and preparing for longer-term shifts in the regulatory landscape. Companies must stay proactive, engaging in ‘horizon scanning’ to identify potential regulatory changes early. This proactive approach not only helps in shaping regulatory discourse through timely feedback to regulators but also prepares the organization to adapt operations or business practices in anticipation of new compliance mandates.
Conversely, when rules are finally established, companies must quickly transition to compliance implementation, a phase where many struggle due to the complexity and volume of modern regulatory changes.
Effective compliance programs are underscored by strong internal reporting and oversight mechanisms. Regulatory regimes differ in their requirements; for example, the UK’s Senior Managers and Certification Regime outlines explicit oversight responsibilities.
Effective regulatory change management feeds into these processes, necessitating regular reviews and oversight to ensure the ongoing relevance and efficacy of compliance policies and procedures. However, given the vast amount of regulatory data, many firms find substantive reporting challenging and often default to quantitative reporting, which fails to adequately assess the quality of regulatory management efforts.
Maintaining detailed records of decisions regarding regulatory changes is crucial for demonstrating the effectiveness of a compliance program. As regulations evolve, compliance standards must be assessed against current regulations to ensure ongoing compliance. Tracking these changes is essential for internal audits and external reviews, which might arise from regulatory inquiries or other significant events, thus underscoring the importance of comprehensive record-keeping in any robust compliance strategy.
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