Compliance role in crisis

By Lawyers Weekly|03 March 2012

WHILE COMPLIANCE is evolving from a regulatory imperative to a competitive advantage, financial services firms are struggling to determine the best role for the compliance function, according to…

WHILE COMPLIANCE is evolving from a regulatory imperative to a competitive advantage, financial services firms are struggling to determine the best role for the compliance function, according to a recent global study.

PricewaterhouseCoopers found that few financial services firms have figured out the best role for compliance functions — is it policeman, counsellor, independent observer or a combination of them all?

This is not being helped by the complexity of the regulatory environment, flagged by respondents to the study as the biggest barrier to achieving compliance. While some progress is being made in viewing compliance as an enabler, there is still much to be done.


“There is recognition that there’s been a shift in how people think about compliance, from an in-arrears, fix everything that goes wrong function to a driver of competitive advantage,” Sandra Birkensleigh, partner at PwC said. “The other side is that doing that is not easy and there’s not a lot of evidence that it’s being done.

She added that while the perception may be developing, the practice is well behind. “Intellectually, senior management in organisations get the concept that compliance can gain competitive advantage, but tactically, it’s very hard to put into practice,” she said. “Practices have been so embedded around the black letter law, that shifting that and having drivers of change within that difficult compliance group is not something that’s happened across the board.”

The study also found that 80 per cent of respondents are finding it difficult to articulate the benefits of compliance as a competitive advantage and the subsequent return on investment. This poses questions over long-term compliance sustainability. “The first thing that gets cropped in the cost cutting exercises is the cost functions,” Birkensleigh said. “It’s critical to making sure you have the right level of infrastructure to deliver your strategy.”

In an environment where senior executives frequently bemoan publicly the costs of compliance, articulating return on investment becomes all the more important.

Many organisations in Australia appear to be struggling with reinventing their compliance frameworks, but change management is an often overlooked factor. At some large corporates, change management, as opposed to compliance experts have been drafted in to guide the organisation through change, and those corporations are reaping the benefits. Birkensleigh agreed that change management is critical.


“The first part is to change the way you think about the problem,” she said. “If organisations think about compliance as an outcome — a verb, as opposed to a noun — you think about the solution quite differently. That’s the first part. You hear people talking about a compliance or risk or audit culture. Does that mean you want three cultures, or do you want organisational culture with a particular way embedded in it around how you want people to operate around risk and compliance issues? In many ways the practitioners in the market place create difficulties for the market by the way they talk about these things — there’s change that needs to happen on both sides.”

There are also concerns over geographical divergence of attitudes to compliance, which may prove an issue to Australian multinationals or Australian-based subsidiaries of US firms. “The US market is much more rules-based than Australia and it operates much more from a litigation perspective. It’s all about doing what you have to do and then arguing about it later,” Birkensleigh said. “It’s more about following the black letter of the law not embracing the spirit of the law. Up until Enron, control environments were not well known. In financial services here we’ve had a lot of regulation for a long time. But the differences in approach are part of our economic culture.”

Stuart Fagg is the Editor of Risk Management magazine, Lawyers Weeklys sister publication.

Compliance role in crisis
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