Compliance and risk management are related but distinct areas of management within a financial organisation. Both are important on their own and yet both go hand-in-hand to advance the strength of an organisation, writes Claire Irvine, network manager of Nexus Global IFA Network.
Compliance refers to the process of ensuring that an organisation adheres to relevant laws, regulations, and industry standards. This can include areas such as corporate governance, anti-money laundering (AML), knowing-your-customer (KYC), and data privacy laws.
Compliance is important because it helps organisations maintain good industry and ethical practices, treat customers fairly, and avoid reputational damage that can result from non-compliance.
Risk management, on the other hand, is the process of identifying, assessing, and prioritising potential risks to an organisation’s operations, reputation, and financial health. This can include areas such as market risk, credit risk, and operational risk. Risk management is important because it helps organisations anticipate and prepare for potential problems and minimises their impact if they do occur.
Both compliance and risk management are important to financial organisations because they facilitate excellence within the industry while protecting themselves and their clients from potential negative consequences.
Many people view compliance as a necessary evil, even a business prevention department. We prefer to view compliance as our superpower. Complying with and exceeding market and regulatory requirements raises the stakes exponentially.
Because we hold providers, advisers, partners, and clients all to the same golden standards, we get to work with the finest people across the industry.
Following robust internal compliance systems aids Nexus Global in creating the best possible practices for our customers within our regulatory framework, while risk management helps us identify and mitigate potential problems before they occur.
Here are some questions that can be used to conduct a compliance “health check” for a financial firm:
- Are all relevant laws, regulations, and industry standards being adhered to? This can include areas such as AML, KYC, and data privacy laws.
- Are all employees, including management, aware of the firm’s compliance policies and procedures?
- Are there regular compliance training programs in place for employees?
- Are compliance risks regularly assessed and evaluated, and are any identified risks being actively managed and mitigated?
- Are there proper controls and procedures in place to prevent and detect compliance violations?
- Are there regular internal and external audits of the firm’s compliance practices?
- Are there adequate resources allocated to compliance efforts, including personnel and technology?
- Are there clear lines of communication between the compliance department and other areas of the firm?
- Are there effective whistleblower and incident reporting mechanisms in place?
- Is there a senior management level person or team responsible for overall compliance?
It’s important to note that legislation and regulations are subject to change and it’s therefore imperative to have a dedicated team guaranteeing you stay informed about the latest changes and updates to ensure that the firm is fully compliant.
Outsourcing the management of your operational risk and compliance framework to an IFA network alleviates the pressure of maintaining heavy overheads that ultimately impact your bottom line.
This article was written for International Adviser by Claire Irvine, network manager of Nexus Global IFA Network.
