Top 10 Reasons to Have a Compliance Committee

What is a Compliance Committee?

The main objective of a compliance committee is to gather the important operational leaders of the company to consider the upcoming compliance risks and to measure their performance on the existing compliance risks. The assumption here is that those compliance risks will be dominated by risks of money laundering or terrorist financing or financial fraud. In other words, we want to be able to state that a company establishing a compliance committee ensures is doing everything that it is supposed to do to fulfill its compliance obligations.

The committee envisioned here is a management committee and distinguishable from the similarly named Board committee. That committee is in part a reason to establish a separate management committee. The Board committee, if it’s typical of those in financial services firms, has jurisdiction over audit or risk or both. It probably meets four to six times a year (unless the company is subject to a regulatory action). Members of the Board committee serve only part time and they probably hold senior positions in other businesses. The management level committee will be more proactive, flexible, and focused than its Board counterpart.

This article lists the top 10 reasons why there should be a compliance committee in every financial services company and the benefits of having a management level compliance committee. Here they are…

1) Coordinated Oversight of Internal Controls

• • Internal controls are the processes and the procedures an organization implements to ensure the integrity of financial and accounting information, prevent fraudulent activities, deter money laundering, and to promote accountability. A compliance committee established across disciplines will oversee the internal controls to ensure they are up to date and functional. The disciplines that could be represented include: legal, audit, compliance, internal audit, risk management, and operations, for instance.

2) Risk Assessment

• • • Risk assessment should be an important function of a compliance committee. The responsibilities of a compliance officer include the periodic assessment of the identified risks of the company. These risk assessments should be conducted periodically throughout the calendar by a consistent group such as the internal audit department or the compliance committee.

3) High-risk Customers Management

• • • High-risk customers or agents are those who are engaged in certain businesses or activities where the possibilities of money laundering are very high. A compliance committee can play a great role in reviewing the high-risk customers, agents, and locations to reduce or eliminate the chance of money laundering. The cross-disciplinary construction of this management commit will enhance its effectiveness.

4) Coordinated Suspicious Activity Reporting

• • • The compliance committee may review suspicious activity reports to ensure they are appropriately issued. This responsibility includes reviewing a determination not to issue a suspicious activity report after a notification that a customer’s activity appeared suspicious. The committee should also discuss and review ways the organization detects and reports the known or suspected violations of law. These discussions can reduce the risk of money laundering, bank fraud, and financial crimes.

5) Internal Compliance Reporting

• • • Officers are responsible to ensure that the company’s management is following its own rules and standards. The committee can be in a position to oversee and coordinate their reports. These officers should be rereporting periodically to the committee (which, in turn, should report to the Board or one of its committees).

6) Changing Regulatory Requirements

• • • A committee should be alert to new or changing regulatory requirements and inform the Board, management, and staff of those changes. The committee should coordinate any proposals or requests for changes in policies and procedures. The committee should also be in a position to prescribe changes in policies and procedures (described in #8, below).

7) Promote a Culture of Compliance

• • • The compliance culture has a deep impact on how a company hires, promotes, or terminates its employees. The compliance expectations should be specified by the compliance program to align practices in all parts of the company with the ethical values as well as the capability to take business risks.

8) Review and Update Policies and Procedures

• • • Regulatory experts recommend that the policies of an organization should be updated annually in order to maintain best practice standards. These policies and procedures govern how the organization manages its businesses and employees as well as how it interacts with the customers. Policy review ensures that a company’s policies are consistent, effective, and up-to-date. Working through a compliance committee will help ensure consistency of approach and application.

9) Complaint Management

• • • Every customer’s opinion affects the business. It doesn’t matter if their opinion about the service or product is positive or negative, the business is affected by it anyway. An organization should establish a complaint management cell (office) under the compliance committee’s oversight. This structure is most important in a company dealing with consumers or a large number of customers of any type.

10) Management Action Plans

• • • Action plans are the lists of the tasks that need to be completed for achieving a given objective. These management action plans can be created in compliance committee meetings for the sake of tracking audit and examination observations and recommendations. As with other items on this list, the value of a committee is its service as a coordinator across disciplines.

11) A Bonus – Positive Effect on Regulatory Relations

• • • The committee will demonstrate a commitment to compliance. That’s certain to warm the hearts of financial institution regulators.

For more information on how Bates Group can assist and help improve your compliance committee, contact us.