Why firms should plan for regulatory compliance: three issues to consider
As we all know, when it comes to their regulatory obligations, international companies face ever moving goalposts.
Regulators are tightening compliance requirements based on a number of frameworks worldwide related to areas such as governance, financial responsibility and sustainability. In 2019, one of the major new rules to effect multinationals has been the requirement for ultimate beneficial ownership (“UBO”) disclosure, instituted to try to create more transparency around firms’ ownership and tax reporting.
The result of this increased regulatory complexity, is that boards now need to ensure that they have a robust and proactive framework for ensuring compliance with their legal and regulatory obligations. The system should include processes both for reporting to the board and monitoring by the board, with special attention paid to those issues that are vital to the company’s business.
Non-compliance is serious and can be accompanied by negative consequences such as reputational damage and/or late filing fees. In all cases, remedial actions involve additional efforts and costs for the company. It will likely also lead to delayed timelines for strategic projects and could even derail these projects altogether.
1. Build an integrated approach to your Regulatory Compliance Plan (RCP)
To make life even more complicated, businesses need to bring together disparate stakeholders within the business to make sure that compliance is assured right across the business. An effective process emphasizes the importance of getting the fundamentals of integration in place as quickly as possible to help minimize disruptions and achieve synergies. Operational efficiency eliminates duplicative effort and minimizes the cost of running the compliance function. These include simplifying processes, strengthening performance management, budgeting and forecasting capabilities, standardizing company policies, optimizing systems and data management. Integration success is critically dependent on an effective compliance management to deliver business insight, help ensure compliance and controls, and create operational efficiencies for capturing deal value across the organization.
2. Create a shared sense of purpose
As a result, the reporting activities become a significant part of Finance and Legal departments’ sphere of responsibilities. Finance and Legal departments are coming from different angles to compliance, usually with their own regulatory agenda and different reporting cycles. Misbalanced cycles become more challenging in terms of compliance management once the processes are interrelated and dependent from the deliverables from different departments. When combining several processes, you first need to agree on a shared purpose, set common goals, and learn how to work as one to achieve results. None of this is possible without ensuring that people who comprise the separate departments can understand one another and speak the same (technical, operational) language.
3. Leverage tools and technology where you can
Citco is known for embracing the complexity of compliance management. Our continuous innovation and extensive expertise in corporate governance helps clients in their everyday efforts to meet the regulatory requirements. While disclosure rules and audit standards still dictate strict and relatively uniform financial reporting requirements, expectations for big-picture reporting have become more complex and open-ended. Therefore, Citco has developed a tool – RCP to integrate Legal and Finance departments’ efforts to comply with the regulatory requirements. The RCP serves as a tool for compliance managers to ensure collaboration and effective communication within the organization. It makes available and easily accessible information such as:
- Regulatory requirements with deadlines and extension possibilities;
- Requirements for preparation, execution and approval of Financial Statements;
- Requirements for preparation of Management Report / Business Report;
- Requirements for audit;
- Requirements for disclosure of non-financial / “Sustainability” (environmental, social and governance practices);
- Schedule for re-election of officers and auditors;
Using an RCP enables compliance managers to quickly navigate and have sufficiently detailed information to make sound decisions in consideration of changing regulatory environment and business needs. It can further be used as a cornerstone for the company to prepare manuals for Finance and Legal departments that provide guidance for regulatory compliance. The RCP is usually supported by regular follow up progress calls when Citco provides an overview of current status, approaching deadlines and provides guidance on what immediate actions are required from the company.
Ernestas Juska, GSGS Vilnius Legal Team Manager
Citco GSGS Focus – Winter 2020