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FINANCE

The Role of Compliance Consulting

Compliance consulting firms specialize in helping organizations understand and meet their regulatory obligations. These firms typically consist of experts with extensive knowledge of financial regulations. The team includes former regulatory agency officials, lawyers, and compliance professionals.

Law firms have recognized the value of these consultants in ensuring their financial institution clients comply with the latest regulations. So, these firms have expanded their horizons professionally, helping their clients keep up with and implement the changing local and international laws. But what exactly is their role?

Ways Law Firms Are Using Compliance Consulting to Support Financial Institutions

Compliance consulting firms play six significant roles in supporting financial institutions to stay compliant. Let’s discuss them.

Regulatory Due Diligence

Financial institutions must thoroughly investigate, audit, and analyze themselves to check for non-compliance vulnerabilities and risks. The process is known as compliance due diligence. Compliance consultants look at the financial entity, its employees, and its projects during the process.

Compliance consultants look at different families of regulations. They look at anti-corruption laws, anti-money-laundering laws, environmental laws, data protection laws, antitrust laws, trade regulations, employee safety regulations, and product safety regulations.

The compliance due diligence landscape is also changing to adapt to the changing times. Companies are now strategic. For example, over the past two to three years, 70% of corporate risk and compliance professionals report a shift from check-the-box compliance to a more strategic approach.

So, institutions are more committed to following the law, going beyond the laid out requirements. They check on new and upcoming regulatory changes, identify and mitigate any risks, and update on new ways of detecting and preventing fraud. These entities also spend more time and resources training employees on improving compliance.

Law firms help these financial entities audit themselves by engaging compliance consultants. This due diligence helps identify potential regulatory risks and gaps in compliance, allowing institutions to address these issues proactively before they become legal problems. Better yet, they identify areas of regulatory overlap and consult with the relevant authorities to agree on the best legal approach.

Compliance Audits and Assessments

Compliance consulting firms conduct comprehensive audits and assessments of a financial institution’s existing compliance framework. They review policies, procedures, and internal controls to make sure your business follows the latest regulations and industry best practices.

Financial institutions sometimes hire in-house compliance consultants who perform the same duties as outsourced compliance consultants. However, an in-house team conducts compliance audits and assessments only used by management to seal loopholes.

You need outsourced independent contractors to handle formal evaluations for use by regulators. These comprehensive assessments look at state, federal, local, corporate, and international regulations.

Compliance audits and assessments are systematic, looking at compliance measures, security guidelines, user access controls, and risk management procedures. They are also technical and subject to standards depending on the issue involved. For example, financial entities transmitting credit card data must conform with the Payment Card Industry Data Security Standard (PCI DSS) requirements.

The process for external auditing is straightforward. Company representatives meet with the compliance consultants to develop checklists, guidelines, and the scope of the audit. The auditors get to work by assessing all documents, employee performance, and departments.

There are also interviews at all management levels, including IT. Most financial entities are digitized now. Hence, the IT department plays a huge role in ensuring compliance. So, you must provide all the necessary documents to facilitate the consultants, and avail essential personnel for interviews.

Training and Education

Employee ignorance is one of the leading causes of unintentional compliance. However, ignorance is not bliss in the workplace. It can be costly when these actions lead to non-compliance penalties, civil and criminal legal procedures, as well as reputation damage. So, consultants provide compliance training and educational programs to ensure financial institutions’ employees are well-informed about compliance requirements, protecting the business.

Compliance trainers educate employees on industry and job-specific policies, procedures, and actions to avoid workplace problems and legal violations. A wholesome compliance training program exposes employees to data protection & privacy, cybersecurity, and business ethics.

There are many benefits of employee compliance training and education. It reduces the risk of financial crime. For example, after training, employees are aware of employee and client practices that may put the business at risk of money laundering and fraud.

Trained employees help improve a company’s reputation. Clients notice how knowledgeable employees are about good practices. They relay this information when reviewing a business and recommending it to their friends and family.

Well-trained employees also exude great morale. They’re confident they are doing the right thing, boosting service delivery. A knowledgeable staff helps financial entities build a culture of compliance from within.

Regulatory Reporting and Documentation

Regulators require financial companies to submit reports showing their adherence to all laws and regulations. The reports from internal and external audits typically show the entity’s financial condition, the results of its operations, and risk exposure. Standard regulatory reports include Consolidated Reports of Condition and Income (call reports) and other Federal Financial Institutions Examination Council (FFIEC) financial reports.

You need professionals to prepare these financial reports and documents for the relevant authorities. Compliance consultants fill this role effortlessly. They assist financial institutions in preparing and submitting regulatory reports and documentation accurately and on time, reducing the risk of regulatory penalties due to reporting errors or omissions.

Compliance consultants first determine the laws and regulations that apply to your financial institution. They ensure the list is exhaustive and that a financial entity has done everything possible to meet the reporting and documentation needs. They also assess customers, contractors, and suppliers.

Hiring compliance consultants is the best option, as they offer an unbiased outsider view of your processes and procedures to improve regulatory reporting and documentation. Nonetheless, the Office of the Comptroller of the Currency (OCC) advises institutions such as banks to include these third-party relationships in their overall third-party risk management processes.

Risk Management

Compliance risk assessment examines the risk of regulatory sanctions, financial loss, or damage to reputation. These issues may arise from a financial institution’s failure to comply with laws, regulations, and industry standards relevant to it. Therefore, by analyzing the risk factors specific to a financial institution, compliance consultants help develop strategies to mitigate compliance-related risks. This proactive approach can prevent costly regulatory issues in the future.

A thorough risk assessment measures all potential threats, including customers, suppliers, transactions, geographic locations, products, services, and employee training. Identified risks are ranked according to their severity levels, usually low, medium, and high risk.

With this information, compliance consultants prepare a risk management plan to mitigate identified risks and decide on accepted levels of risk. They’ll use four main methods to manage risk. First, they look at the entity’s policies and procedures to ensure they are consistent with risk management principles. They also confirm that senior management’s expectations are proportional to the level of risk.

Compliance consultants use technology to employ a data-driven approach to risk management. The accuracy of automated tools better reveals the gaps and helps inform better decisions towards layered security. Thirdly, compliance consultants identify red flags that financial institutions should investigate to mitigate risk.

Lastly, compliance consultants train the employees and management at financial institutions to implement and effectively use the risk model. For example, a risk model helps identify a customer who transacts suspiciously, sends or receives money from risky geographic locations, and exclusively uses products that don’t require physical interactions with the bank when physical interactions are an option. In this case, risk management entails designating someone or a department to check if people fitting this category are of acceptable risk, how manageable the risk is, and how frequent monitoring should be to decide the next legal course of action.

Keep Abreast of Regulatory Changes

The central role of financial institutions is improving products and service delivery, keeping customers happy, and improving sales. Therefore, they spend most of their time developing customer-centric strategies that help them surpass the bottom line. However, issues other than customer satisfaction affect a business’s sustainability. One of them is regulatory compliance.

Unfortunately, laws regulating the financial industry are pretty fluid. It’s overwhelming to keep up. So, hiring compliance consultants is a strategic option. They work in the backend, continuously monitoring regulation changes then inform you of updates that may affect the business. These consultants ensure all employees and management understand the new requirements, train them, and develop strategies that reduce vulnerabilities and increase compliance.

So, financial institutions adapt quickly to new compliance requirements as they excellently serve customers.

Finding Compliance Consultants is Easy

There are a few big names in the industry such as Chartwell Compliance which used to be called Ankura, Treliant, and the highest rated newcomer is Captain Compliance which built out a collective of compliance professionals passionate about helping financial institutions stay one step ahead of regulators. Finding a team that helps you strategically grow your business and avoid non-compliance by conducting regulatory due diligence, compliance audits, and assessments, employee and management training and education, regulatory reporting and documentation, and risk management is essential to stay ahead of the ever-changing compliance landscape.

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