Developing an Effective Compliance Management System

By Phoebe Fasulo

Posted on Nov 24, 2020

Maintaining compliance with consumer protection regulations is essential for financial institutions, as failure to comply can result in costly fines and formal enforcement actions. To ensure regulations are being followed, many financial institutions rely on compliance management systems (CMS). Having an established CMS helps organizations streamline their risk management processes, improving their ability to effectively mitigate risk.

With increased emphasis being placed on financial risk management over the last few years, having an effective CMS program is more important than ever before. Unlike in the past, a CMS is now a necessity for conducting business. Below we outline the key components of a compliance management system as well as steps you can take to build an effective CMS program at your business.

What is a compliance management system?

A CMS is an integrated system consisting of written documents, tools, processes, and functions designed to help employees properly manage risk and maintain compliance with relevant regulations. By aligning employee tasks with the tools and resources needed to ensure compliance is maintained while carrying out day-to-day operations, a CMS limits business risk.

Compliance management systems also help employees understand their individual responsibilities when it comes to adhering to industry regulations. This is especially important as it gives employees and organizations a way to monitor performance while also creating a system of internal checks and balances.

What are the components of a CMS?

There are several components that must be considered when building a vendor compliance management system. It is also important that each of these components are integrated with each other in order to avoid compliance oversight. Below are the three main programs that should be included in your CMS program:

Board and management oversight

The board of directors is responsible for the development, implementation, and oversight of a CMS at your organization. That said, oversight can be provided via a compliance officer as well. Should your organization hire a compliance officer, it is important that they have access to all areas of the organization’s operations so that they can accurately review compliance policies across departments.

The goal of the board should be to provide your organization with a set of concise guidelines that cover expectations around internal and third-party compliance. The board should also create processes that allow for internal auditing of compliance programs in the form of detailed assessments and reports.

During audits, regulatory examiners will likely assess your institution’s board of directors in order to evaluate the effectiveness of the CMS program they implemented. This examination will cover the following assessment factors:

  • The board’s commitment to their organization's CMS.
  • The board’s ability to effectively respond to internal and external changes in management in a timely manner.
  • The board and CMS’s ability to effectively manage risks that arise as a result of the organization's product or service.
  • The board and CMS’s ability to identify and respond to consumer compliance issues or concerns.

Compliance program

A critical component of a CMS is having an established compliance program. In addition to providing an organization with systems that monitor compliance, a written program also provides essential documents that can be used during employee training. This helps to reduce policy violations, improving data compliance and cost management.

A successful compliance program should contain the following components:

Policies and procedures

Policies and procedures are the written documents an organization provides to its employees regarding regulatory compliance. These documents should include compliance goals as well as the procedures employees can follow in order to meet those goals. These policies and procedures should be reviewed and updated on an annual basis to account for ongoing organizational changes.

Training

Employee training is essential to the success of a CMS, which is why it is critical that organizations set up compliance training programs. Trainings should cover relevant regulations, internal policies and procedures, and emerging policies in the financial sector.

Continuous monitoring

Continuous monitoring helps organizations identify potential gaps in their policies and procedures that can lead to non-compliance. By creating systems that continually monitor compliance, institutions increase the effectiveness of their programs, thereby limiting risk.

Compliance audit

A compliance audit is an independent review, usually conducted by a third-party organization, that assesses a financial institution's adherence to its internal policies and procedures. The audit helps the board of directors identify potential gaps in their compliance programs and provides guidance for addressing identified risks.

Since the board of directors is responsible for setting up audits, all audit findings should be sent directly to them. When writing an audit report be sure to include the following:

  • Scope of the audit, including all departments, products, services, and branches that were reviewed.
  • Number of products or services sampled by the auditing agency.
  • Overview of any corrective actions the auditing agency recommends taking.

How SecurityScorecard can help with compliance management

When building compliance management systems, it helps to have access to tools and resources that assist with compliance risk management. With insights from SecurityScorecard’s financial services solutions, organizations are able to build comprehensive CMS programs that accurately monitor and address compliance risk. The increased visibility organizations gain into the IT infrastructures allows them to easily remediate security and compliance risks as they arise.

Financial organizations are also able to monitor vendor compliance with our third-party risk management solutions. By assigning a letter grade to each vendor, businesses can quickly identify potential compliance concerns and work with vendors to make sure they are addressed.

As more financial organizations embrace digital transformation, it is important that they implement solutions that help maintain ongoing compliance. With SecurityScorecard, financial institutions are able to maximize their compliance programs and ensure adherence with necessary regulations.

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