Emerging International Indicators for Compliance Function Expectations

Global trends on risk management help foreshadow what may come to be expected of compliance functions in an increasing number of jurisdictions, particularly in respect of positioning, resources, and authority. Gabe Shawn Varges, Head of Governance at FINMA, the Swiss combined regulator for banking, insurance, and securities, examines emerging international indicators for compliance function expectations.

The author writes: Though not a perfect predictor, the global trends on risk management help foreshadow what may come to be expected of compliance functions in an increasing number of jurisdictions, particularly in respect of positioning, resources, and authority. The outcome will probably be less about prescribing details for the compliance architecture and more about expecting that, however structured, a compliance function possesses the ability to exercise an effective checks-and-balance role within the company's overall governance and risk control system. Doing a diagnostic review from this angle may allow companies-particularly those involved in multiple countries-to check on the soundness of the foundations of their compliance approach.

The recent world financial crisis has triggered a cross-border "rethink" on financial regulation. Regulators around the globe have been forced to review both the extent and nature of how they regulate financial institutions. The concern is not just the health or actions of single companies but the interdependencies of the financial system as a whole. The notion of macro imbalances and systemic risk became quite real for governments in 2008 as the world came dangerously close to, as the U.S. Chairman of the Federal Reserve Board put it, a "global financial meltdown".

Within this context of regulatory reform and concern for market stability, one element on the minds of many regulators is what should be expected of the functions companies have or should have in place to protect against excessive risk taking and misconduct (commonly referred to as "control functions"). For in one sense the effectiveness or lack of effectiveness of these functions across all companies put together may itself be systemically relevant. The main focus in the current international debate is the risk management function, but the considerations at play may be relevant too for how expectations regarding compliance functions continue to develop across the world both in the financial services industry and beyond. [footnotes omitted]

Access the full version of "Emerging International Indicators for Compliance Function Expectations" with your lexis.com ID

If you do not have a lexis.com ID, you can purchase the Emerging Issues Analysis content through our lexisONE Research Packages