What is a Compliance Department

A compliance department ensures that a financial services business adheres to external rules and internal controls.

BREAKING DOWN Compliance Department

A compliance department has five areas of responsibility: identification, prevention, monitoring and detection, resolution, plus advisory. Compliance identifies risks that an organization faces and advised on them. It designs and implements controls to protect the organization from those risks. Compliance monitors and reports on the effectiveness of controls in the management of the organizations risk exposure. The department also resolves compliance issues as they arise and advised the business on rules and controls.

Compliance officers within the compliance department have a duty to their employer to work with management and staff to identify and manage regulatory risk. Their objective is to ensure that an organization has internal controls that adequately measure and manage the risks it faces. Compliance officers provide an in-house service that effectively supports business areas in their duty to comply with relevant laws and regulations and internal procedures. Industry regulators authorize and supervise compliance rules through investigation, gathering and sharing information and imposing applicable penalties. Factors used to determine risk within an organization include the nature, diversity, complexity, scale, volume and size of its business and operations.

Compliance Department Role Expansion

In the financial services sector, compliance departments work to meet key regulatory objectives to protect investors and ensure that markets are fair, efficient and transparent. They also seek to reduce system risk and financial crime. These objectives are designed to support consumer confidence in the financial system. Financial services organizations also are subject to regulatory business rules that govern advertising, customer communications, conflicts of interest, customer understanding and suitability, customer dealings, client assets and money as well as rule breaking and errors.

The 2008 financial crisis led to increased regulatory scrutiny and regulation. This caused financial services organizations to increase the role of the compliance department from advisory to active risk management and monitoring. Compliance now provides practical perspectives on translating regulations into operational requirements. This stronger risk culture includes timely information sharing, rapid escalation of emerging risks as well as willingness to challenge existing practices. Effective execution of these expanded responsibilities requires deeper understanding of the business and business practices. And, the structure of the compliance department has changed to combine business-unit based coverage with broader, shared expertise across the organization. Recent topics addressed by compliance departments include conduct risk, Banks Secrecy Act and Anti-Money Laundering (BSA/AML) risk, subcontractor risk and overall risk culture management.