Regulators newly-empowered by the recommendations of the final banking royal commission report will compel financial institutions to build up their compliance systems, says a governance expert.
This will mean that compliance, the function that ensures a company comply with the relevant laws, policies, and regulations, shifts from being seen as a cost to be minimised, into a key risk management tool, said Samantha Carroll, a lawyer at Ash St and former head of compliance at the Bank of Queensland.
“Compliance systems, lack of compliance and in some cases, seemingly complete disregard for the law were a common theme throughout the [royal commission],” she said.
“But Australia’s dirty secret is that under-investment in compliance spreads more broadly than the banking, superannuation and financial services sectors.”
Commissioner Kenneth Hayne made 76 recommendations in his banking royal commission report, including proposals to improve the effectiveness of the corporate regulator and the prudential regulator.
Strengthening the enforcement of regulations would lead to higher levels of compliance activity, she said.
“Those industries or legislative regimes where there is less regulator activity tend to have the lowest standards of compliance,” she said.
Ms Caroll, who has consulted on compliance across a range of industries including retail, banking, financial services, public sectors and utilities, said Australian companies will need to invest more in their compliance functions.
“[I] have repeatedly observed compliance functions and senior compliance professionals struggle to manage increasingly complex and vast regulatory regimes with varying degrees of limited resources, under-investment, lack of independence and no authority to perform their role,” she said.
She said compliance staff should be given the budget and authority they need to properly carry out their role within companies.
“It is extremely rare for an Australian chief compliance officer or head of compliance to be at an executive manager level,” she said.
“This is not the case overseas where increasingly senior compliance managers have a seat at the executive manager table and the concept of a ‘compliance director’ has begun to emerge.”
She added that compliance technology had evolved to the point where it could add value to a business by both limiting bad behaviour and improving the processes within a company.
“One of the common attitudes towards compliance is that it is seen as an expense which delivers little to no value to the organisation,” she said.
“This attitude is misinformed and based on ‘old-school’ compliance which relied heavily on manual processes, impractical policies and cumbersome control documents.”
“However, compliance has evolved considerably over the last decade and requires deeper experts, innovative solutions and technology in order to be effective.”
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