In today's business landscape, where regulations evolve rapidly, and ethical standards are continually scrutinised, the role of compliance has become increasingly critical. To put this into perspective, GDPR fines for non-compliance can reach as high as £17.5 million! So, whether you're a start-up navigating your industry's legal maze or a well-established corporation aiming to uphold its reputation, a robust compliance function is the bedrock of organisational integrity. We’ll delve into the logistics of building a compliance department from scratch, uncovering the key steps to take and explaining why compliance functions are indispensable in the modern business world.
“Compliance is not a department, it is a state of mind and a corporate conduct imperative. Yet a concept without embodiment in a strong organizational construct cannot successfully support societal and business goals”
- Pierre-Antoine Boulat, North America Delivery Lead, Risk, Regulation & Compliance, FDM Group
What’s in this guide?
- What is a compliance department?
- What does a compliance department do?
- Compliance department structure
- How to build a compliance department from scratch
- What role should technology play in your organisation’s compliance teams?
- 9 Benefits of outsourcing compliance teams
- Could the FDM KYC Pods be the ideal compliance solution for your business?
What is a compliance department?
A compliance department, also known as a compliance office or function, is a specialised organisational unit that is responsible for ensuring a company operates in accordance with all applicable laws, regulations, industry standards, and internal policies or procedures.
What does a compliance department do?
The primary role of a compliance team is to mitigate legal and regulatory risks, maintain ethical conduct, and uphold the organisation's reputation by monitoring and enforcing compliance with relevant rules and standards.
Compliance department roles and responsibilities
- Regulatory compliance: ensuring that the organisation complies with all relevant laws and regulations, including financial regulations, environmental laws, labour laws, and industry-specific regulations.
- Internal policy compliance: developing, implementing, and enforcing internal policies and procedures that align with legal and regulatory requirements. These policies could cover areas such as data privacy, anti-money laundering, anti-corruption, and more.
- Risk assessment: conducting risk assessments to identify potential compliance risks and vulnerabilities within the organisation.
- Monitoring and auditing: continuously monitoring and auditing the organisation's activities to ensure compliance with internal policies and external regulations. Regular audits help detect and address compliance issues.
- Reporting: preparing and submitting reports to senior management, the board of directors, and regulatory authorities, as required, to communicate compliance findings and issues.
- Training and education: providing compliance training and education to employees at all levels to ensure they understand their roles and responsibilities in compliance efforts.
- Incident response: developing and implementing an incident response plan to address compliance violations or breaches, promptly and effectively.
- Ethical culture promotion: promoting a culture of ethics and compliance throughout the organisation, emphasising the importance of ethical behaviour and adherence to rules and regulations.
- External engagement: engaging with industry associations, regulatory bodies, and legal experts to stay informed about changes in regulations and best practices.
- Documentation and recordkeeping: maintaining thorough records of compliance activities, assessments, and audits to demonstrate the organisation’s commitment to compliance.
Compliance department structure
The structure and size of a compliance department can vary significantly depending on the organisation's industry, size, and complexity. Smaller organisations may have a single compliance officer, while larger corporations may have extensive compliance teams with specialised roles and responsibilities. Some of the key roles include a Chief Compliance Office (CCO), Compliance Managers, Compliance Analysts or Officers, and Legal Counsels.
How to build a compliance department from scratch
Building a compliance department from the ground up will look different for every business. Here are ten steps you can take to build a compliance function for your organisation:
- Assessment of compliance needs
- Define compliance objectives
- Appoint a compliance leader
- Create a compliance team structure
- Recruit and hire compliance professionals
- Develop compliance policies and procedures
- Implement compliance training and awareness programmes
- Select compliance technology and tools
- Establish compliance reporting and monitoring mechanisms
- Foster a culture of compliance
1. Assessment of compliance needs
Begin by conducting a thorough assessment of your organisation's compliance requirements. Identify the relevant laws, regulations, industry standards, and internal policies that apply to your business. Understand the specific compliance risks and challenges within your industry and region.
2. Define compliance objectives
Clearly articulate the objectives and goals of your compliance function. Determine what you aim to achieve through compliance efforts, whether it's reducing legal and regulatory risks, enhancing ethical conduct, or improving overall governance. At this point, you may need to get C-suite direction or approval.
3. Appoint a compliance leader
Appoint a qualified individual as the Compliance Officer or Chief Compliance Officer (CCO). The CCO will be responsible for overseeing the compliance team and ensuring that compliance objectives are met. This role should have the authority and autonomy to operate independently.
4. Create a compliance team structure
Define the roles and responsibilities within your compliance team. This may include Compliance Managers, Analysts, Auditors, legal experts, and specialists in specific compliance areas such as data privacy, anti-money laundering (AML), Know Your Customer (KYC), or ethics.
5. Recruit and hire compliance professionals
Recruit and hire professionals with the necessary expertise and skills to fill the roles you've defined. Look for candidates with a background in compliance, regulatory affairs, legal knowledge, and industry-specific experience. Conduct rigorous interviews and reference checks to ensure you select the right talent. You may even consider outsourcing for some of these roles!
6. Develop compliance policies and procedures
Create comprehensive compliance policies and procedures that outline how your organisation will adhere to applicable laws, regulations, and internal guidelines. Ensure that these policies are clear, accessible, and regularly updated.
7. Implement compliance training and awareness programmes
Develop training programmes to educate employees at all levels about compliance policies and regulations. Raise awareness of the importance of compliance throughout the organisation and provide ongoing education to keep employees informed.
8. Select compliance technology and tools
Invest in compliance management software and tools that can streamline processes, automate compliance tasks, and facilitate reporting and monitoring. Choose technology solutions that align with your specific compliance needs and ensure staff are educated on how best to use these technologies.
9. Establish compliance reporting and monitoring mechanisms
Set up reporting and monitoring systems to track compliance activities, audit adherence to policies, and generate reports for senior management and regulatory authorities. Regularly review and assess compliance performance.
10. Foster a culture of compliance
Promote a culture of compliance throughout your organisation. Encourage ethical behaviour, transparency, and a commitment to following rules and regulations at all levels. Ensure that compliance is viewed as a shared responsibility across the organisation.
What role should technology play in your organisation’s compliance teams?
Compliance teams should not fear technology. In fact, technology and compliance teams are integral partners in modern organisations, working collaboratively to enhance efficiency, accuracy, and effectiveness while upholding regulatory and ethical standards. Technology augments the capabilities of compliance professionals by providing tools for data analysis, automated monitoring, and streamlined reporting. These advancements enable compliance teams to focus on high-level strategic tasks, such as risk assessment and policy development, while technology handles routine, data-intensive processes. Data from Refinitiv’s Global Risk and Compliance Report reveals that 86% of businesses believe innovative digital technologies have aided them in identifying financial crime. Key compliance functions that benefit from technology have been identified as regulatory reporting, trade surveillance, marketing reviews, compliance policy, and vendor oversight.
One key example of technology in compliance teams is artificial intelligence, which can play a huge role in KYC automation. Read our guide to KYC automation to learn more about its benefits and use cases.
“Compliance is the foundation of trust. It is what shows customers, employees, and stakeholders that your company is committed to doing things the right way. When we comply with the law and regulations, you can build a reputation for integrity and reliability, which will help you grow your business and succeed in the long term.”
- Craig Hunter, Academy Trainer, FDM UK
9 Benefits of outsourcing compliance teams
Starting a compliance team from scratch is challenging due to the need for leadership support, building a skilled team, developing policies, and addressing evolving regulations in the absence of prior compliance infrastructure. In some instances, outsourcing compliance teams can offer several advantages to organisations. Approximately 34% of businesses already outsource part or all of their compliance functionality. The main reasons for financial institutions in particular outsourcing compliance is the need for additional assurance on compliance processes, lack of in-house skills, and cost savings.
Here are some of the benefits of outsourcing compliance experts in more detail
- Cost efficiency
- Expertise access
- Focus on core competencies
- Global compliance
- Efficiency and automation
- Access to best practices
- Time savings
1. Cost efficiency
Outsourcing compliance teams can be cost-effective compared to maintaining an in-house team. Organisations can avoid expenses related to salaries, benefits, office space, and ongoing training.
2. Expertise access
Outsourcing firms often specialise in compliance, bringing a wealth of knowledge and experience to the table. This allows organisations to tap into a broader range of expertise than they might have in-house.
Outsourced compliance teams can easily scale up or down based on the organisation's needs. Whether dealing with growth or contraction, you can adjust the level of compliance support accordingly.
4. Focus on core competencies
Outsourcing compliance tasks allows internal teams to concentrate on their core competencies and strategic objectives, leading to improved overall efficiency and productivity.
5. Global compliance
For organisations operating in multiple jurisdictions or internationally, compliance outsourcing firms often have expertise in navigating complex global regulatory landscapes.
6. Efficiency and automation
Outsourcing companies often employ advanced compliance technology and automation tools, increasing efficiency and reducing the margin for human error.
7. Access to best practices
Outsourcing firms are often at the forefront of compliance best practices and emerging regulations. They can help organisations stay updated and implement industry-standard compliance procedures.
8. Time savings
Outsourced compliance teams can often provide around-the-clock support, helping organisations respond to compliance issues promptly, while you focus on your usual important business operations.
Organisations can tailor outsourcing arrangements to suit their specific needs, whether they need full-scale compliance management or assistance with specific compliance projects.
Could the FDM KYC PODs be the ideal compliance solution for your business?
FDM serves as a strategic talent solutions partner, connecting your organisation with seasoned tech professionals across sectors, effectively addressing your evolving resource needs and supporting growth. Our AML-KYC PODs services offer a middle-ground solution, granting organisations control over their KYC remediation while benefiting from our consultants' expertise. Our agile teams provide lasting solutions, staying abreast of regulatory changes and industry trends, ensuring your compliance efforts remain effective.
Learn more about FDM’s Risk. Regulation, and Compliance Consulting services or get in touch for more information.