Compliance monitoring is a critical process for businesses to test the effectiveness of policies, procedures, and controls in place to mitigate risk and ensure compliance with regulatory and internal business requirements. Various methods can be employed to achieve effective compliance monitoring, each with its own advantages and considerations. Here are some different approaches:
1. Manual Monitoring
Manual monitoring involves human oversight and intervention to review transactions, activities, and compliance with policies. This method can be effective for smaller firms or for specific types of transactions where human judgment is crucial.
Advantages:
- Allows for nuanced understanding and judgment.
- Can be tailored to specific, complex scenarios.
Disadvantages:
- Time-consuming and resource intensive.
- Higher risk of human error.
Example:
A small investment firm manually reviews all high-value transactions to ensure compliance with anti-money laundering (AML) regulations.
2. Monitoring Software
Monitoring software’s track and report compliance and activities. This method is particularly useful for large volumes of data and can quickly identify patterns and anomalies.
Advantages:
- Efficient for handling large volumes of data.
- Reduces the risk of human error.
- Can operate continuously.
Disadvantages:
- Requires initial setup and ongoing maintenance.
- May still require manual review.
Example:
Businesses can assign tasks, track, and monitor completion without having to chase vendors, colleagues, or partner organisations manually. Or for a financial firm, a principal firm can assign tasks and monitor their appointed representatives without having to chase and record information manually.
3. Hybrid Monitoring
A combination of manual and monitoring software can leverage the strengths of both approaches. Monitoring software can handle large volumes of data and flag potential issues, which are then reviewed manually.
Advantages:
- Balances efficiency and human judgment.
- Can reduce the number of false positives.
Disadvantages:
- Requires coordination between digital systems and human reviewers.
- Can be complex to implement manageable compatibility.
Example:
A financial institution uses software to submit a marketing or financial promotion for review and approval. The software creates an audit trail, notifies approvers, and routes it through the approval process efficiently, allowing management to review, edit and comment along the way.
4. Risk-Based Monitoring
This approach focuses on areas of higher risk, allocating more resources to monitor activities that pose greater compliance risks. It is a dynamic process that adjusts based on evolving risk assessments.
Advantages:
- Efficient use of resources.
- Focuses on the most significant risks.
Disadvantages:
- Requires accurate risk assessment.
- May overlook low-risk areas that could still pose compliance issues.
Example:
A firm conducts more frequent and detailed monitoring of all risks, both regulation-specific and generic, helping to identify potential gaps and establish controls, leading to a more robust risk management plan.
5. Governance and Oversight Mechanisms
Establishing robust governance mechanisms to oversee compliance monitoring is crucial. This includes defining responsibilities, measuring effectiveness, and ensuring regular reviews.
Advantages:
- Clear lines of responsibility and accountability.
- Regular reviews can lead to ongoing improvements.
Disadvantages:
- Can be slow and cumbersome, especially in large organizations.
- Requires dedicated resources for governance and oversight.
Example:
An asset management firm might have a compliance committee that oversees the effectiveness of its compliance monitoring systems and reports to senior management.
6. Periodic Reviews and Audits
Regular reviews and audits of compliance activities and controls can help ensure ongoing adherence to regulations and internal policies. These can be conducted internally or by external auditors.
Advantages:
- Provides a comprehensive assessment of compliance.
- Can identify systemic issues and areas for improvement.
Disadvantages:
- Can be resource intensive.
- May not catch issues that arise between review periods.
Example:
A financial institution conducts quarterly audits of its AML compliance program to ensure all controls are functioning as intended.
7. Outsourcing
Firms may choose to outsource their compliance monitoring to third-party providers. This can be beneficial for firms lacking the internal resources or expertise to manage compliance effectively.
Advantages:
- Can be more cost-effective than hiring internal employees.
- Access to specialised knowledge and skill.
Disadvantages:
- Must trust third party to meet standards.
Example:
Complyport can conduct a review of compliance monitoring processes or provide an expert consultant to be seconded, acting in an organisation’s senior management functions or managing its compliance monitoring and reporting.
8. ComplyPortal
Assign, Track & Manage tasks whilst simultaneously creating a clear audit trail through an easy-to-use cloud-based software. With custom reports just one click away, and an on-hand client services team saving you valuable admin hours; your compliance monitoring can be more comprehensive and less time-consuming, all under one affordable roof.
Advantages:
- Client services team saves admin hours.
- Quick and specific report generation.
- Clear calendar of all Future, Completed & Due Tasks.
Disadvantages:
- You’ll wish you’d been using it all along.
Example:
You are asked to provide 5 years of incident or breach reporting for management in your business or for a regulatory body such as the FCA. With ComplyPortal, you can highlight the task type and period, download the report and submit it to management or the regulator within a matter of minutes.
Discover how ComplyPortal can be applied to your organisation by booking your bespoke, complimentary Demonstration.
Find out more about how the ComplyPortal platform can help firms adapt to new regulatory expectations at: https://complyportal.uk/modules/
About ComplyPortal:
First developed in 2011 by compliance professionals for compliance officers, ComplyPortal offers workflow, automation, and several modules to help firms with control and regulatory compliance monitoring.
ComplyPortal simplifies financial services regulatory compliance management on an easy-to-use cloud-based comprehensive compliance platform. It enables compliance officers, risk officers and senior management to keep track of their firm’s regulatory responsibilities and workflows. Our platform includes the following modules, among others:
- Monitoring: a year-round schedule pre-populated with monitoring questionnaires to ease compliance processes.
- Approvals: authorise request and keep track of workflows
- Registers: lists controlled by the Compliance officer, but easy for staff to view.
- Risk: map and control risk areas to effectively identify and manage risk for your firm.
- Training: access our LMS platform for all Compliance and Governance Training
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