How is regulatory compliance defined?

Historically, legislation has always been the responsibility of national governments, resulting in a wide variety of regulatory frameworks around the world. In recent years, the increasing dependence on global markets rather than local markets has increased international initiatives to achieve a more consistent approach to compliance with the rules. Despite these developments, there is still no single regulatory framework with global application and there are also no “international regulators”. Nevertheless, there is a fairly clear process at the global level: major international organizations provide a framework of international best practices that are implemented in the legislative systems of member countries. For example, the 40 Recommendations issued by FATF have provided a comprehensive legal basis for the Anti-Money Laundering Act (AMLA) in Switzerland.

First of all, it is necessary to understand what the term “compliance” is related to. In fact, this term describes the ability to act on the basis of an act or set of rules. Therefore, it is a means of controlling actions or behaviors through rules and restrictions. In the context of financial services, these restrictions take the form of:

  1. principles
  2. rules
  3. conditions and standards that govern the functioning of the financial services market and the behavior of companies and individuals working in it.

Secondly, in the area of financial services, “compliance” operates generally at two levels:

  • Compliance with the country’s legislation, regularity rules and principals imposed upon an organization or a company as a whole.
  • Compliance with internal systems of control such as internal policies and sets of business procedures that are implemented to ensure compliance and the exercise of due diligence.

The regulatory compliance has a major focus on 1). the regulators who issue regulations to face the complexity of the business environment, 2). the government, 3) the consumers and 4). the general public. Nowadays, an opinion is articulated that there is too much regulation and the latter is very complex. It is true but the complexity of the financial services industry should be taken into consideration. Modern industry globalization leads inevitably to complexity because one the one hand, banks and financial services companies operate multiple business lines in different jurisdictions, and on the other hand, there is an aversion related to so-called “safe heavens” countries where these lower compliance standards can be exploited.

Thirdly, enforcement is a logical outcome related to the process of authorization and supervision of the financial services, in the sense that a regulator must enforce compliance with rules. Enforcement is much about investigating, gathering and sharing information as well as imposing personal liabilities and penalties.

Fourthly, the term “regulation” generally refers to a set of binding rules issued by a governing public body to supervise compliance. In case of non-compliance, enforcement actions and sanctions are applied.

Besides, the term “code of conduct” governs the domain related to firms’ interactions with various consumers. The code of conduct clarify business rules that impose minimum standards of acceptable compliance upon a regulated business.

Finally, compliance helps us better understand the behaviors that are expected from us in a work context because its role has been fundamentally related to the notions of “conduct” meaning how we behave and “outcome” meaning the results of our behavior. Compliance is looking forward to minimize risks striving to advance business areas with more skills in order to facilitate business decisions.

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