The compliance objectives are to ensure that management and employees of the organization comply with all applicable laws, regulations, rules, and standards that apply to the company. Compliance is ensured through the design, development, and implementation of policies, processes, and procedures. The management develops such policies, processes, and procedures under the supervision of the Board of Directors. The aim is to ensure that all applicable laws, rules, regulations, and standards are complied with in letter and spirit by all the employees.
The companies and businesses have attracted great attention from the regulators due to various factors, including global financial crises, frauds, customer complaints, technological advancements, etc. Many companies have faced a significant decline in market performance, and various have been levied massive penalties for non-compliance with applicable laws and regulations. The regulatory environment is undergoing a major shift towards compliance risk and its proactive management wherein more quality resources are being required to be deployed by the companies, businesses, and organizations.
The penalties imposed by the regulators may vary, and the relevant government bodies or agencies may revise them. Therefore, the penalties may not be mentioned explicitly for future periods, which are subject to change by the authorities.
The Compliance Objectives in Compliance Risks
The objective of compliance is to identify and manage compliance risks. The primary responsibility of establishing an independent and effective compliance culture rests with the company’s board of directors. The objective is to put in place a strong compliance culture and processes to ensure that all applicable laws are complied with in letter and spirit and, thus, minimize legal and market compliance risks. The management prepares and implements their employees’ compliance policies, processes, and systems for regulatory compliance.
The employees are not permitted to work against the Board and management’s approved policies, rules, and processes to avoid regulatory breaches or non-compliance with applicable laws and regulations. The Compliance Officer is appointed to ensure that all applicable laws and regulations are identified, understood, and complied with by the employees to ensure compliance.
It is essential to understand that all the employees in the organization are responsible for ensuring compliance with the laws, regulations, and rules that apply to corporates. In collaboration with its management team, the company’s chief executive officer establishes the rules in the form of internal compliance policies, processes, procedures, and systems, which cumulatively work as a reference source for the employees and staff to ensure the applicable corporate compliance requirements. It is important to understand that the top management, including the CEO or board of directors, is responsible for setting the rules for the employees and staff.
As a regulatory requirement, to reasonably deal with clients, it is mandatory for companies, especially financial institutions, to have themselves credit rated by the approved credit rating agency. The credit rating will be an ongoing process. For instance, credit rating must be updated regularly within six months from the date of close of each financial year, and the company’s rating report should be submitted to the financial market regulatory authority of the jurisdiction. The credit rating of the company should be made public. The companies shall disclose their credit rating prominently in their published annual and quarterly financial statements.
Laws and regulations require that companies refrain from adopting practices that would either artificially or temporarily show an ostensibly different financial position in the financial statements. Companies must show their deposits, investment transactions, assets, provisioning, operating and net profits, or any other method to artificially inflate the financial position to attract potential clients or investors.
Regarding the investment limits, the company makes rules for the investments prescribed in the corporate compliance policies and procedures where companies are restricted from investing the funds over the prescribed percentages of the aggregate equity of the respective company.
The objective of compliance is to implement strong corporate compliance governance policies and processes to foster corporate compliance culture. Without sound regulatory and supervisory compliance structures, the negligent behavior of employees or staff towards corporate compliance may lead to the cancellation of licenses or inspections by the regulatory authorities, leading to penalties. Applying corporate compliance regulations requires safeguarding the interest of regulators, prospective investors, clients, creditors, and other stakeholders.