An important role of compliance officers is keeping an organization operating between the lines and ahead of risk. It’s no wonder that when it comes to the topic of compliance challenges many experts will create a long list of risks that include: AI, Cybersecurity, ESG, Fraud, Safety, Climate Change, Cybersecurity, Fraud, and many many more. These are indeed areas of concern and in need of attention.
However, there will always be uncertainty and risk when it comes to meeting business objectives. What's critical is deciding how best to ensure mission success in the presence of this uncertainty.
That’s why the list of challenges should contain items related to operational aspects of compliance. These are challenges pertaining to what’s needed for compliance to be fit for purpose and capable of meeting all obligations, and contending with risk associated with legal requirements to ESG commitments and everywhere in between.
The following are key challenges facing compliance officers seen through an operational lens. This is not exhaustive list and you will no doubt have your own challenges to add to it. However, it's a good place to start when planning your compliance objectives for the upcoming year:
Identifying, Classifying, and Taking Ownership for Obligations: One of the initial challenges lies in identifying and classifying the diverse set of obligations an organization must meet. Compliance officers must take ownership and establish a clear understanding of each obligation to form a solid foundation for an effective compliance program.
Operationalizing Obligations: Once obligations are identified, the challenge is to operationalize them across the organization seamlessly. This involves defining obligation commitments and establishing processes that ensure compliance is integrated into day-to-day operations.
Organizational Structure to Meet Obligations: Deciding on the optimal organizational structure to meet obligations is crucial. Compliance officers must strike a balance, ensuring that responsibilities and accountabilities are distributed appropriately across roles, functions, divisions, and business units.
Addressing Risks Across Programs: Determining which risks to address within a compliance program and across the entire portfolio (safety, security, sustainability, quality, corporate, ethics, AI, etc.) is a perpetual challenge. Balancing priorities and aligning risk mitigation strategies with organizational goals requires strategic decision-making.
Evaluating Operational Risk: Compliance officers must continuously evaluate and contend with operational risks associated with meeting obligations. This involves assessing potential disruptions and implementing strategies to mitigate these risks effectively.
Measuring Compliance Success: Defining and measuring compliance success is essential. Compliance officers need to establish clear metrics for conformance, performance, effectiveness, and assurance within each program and collectively across the entire compliance portfolio.
Governance of Multiple Programs: Deciding how to govern and operate multiple compliance programs and management systems is a complex task. Establishing effective governance structures and processes ensures alignment and accountability while optimizing resource utilization.
Resource Optimization: Strategically leveraging existing resources to enhance compliance capabilities is a challenge. Compliance officers must identify opportunities for improvement and implement measures to achieve better outcomes with available resources by reducing waste and tapping into underutilized talent.
Budgeting Within Risk Tolerance: Determining the size of the budget needed to meet obligations within risk tolerance, capacity, and capabilities is a delicate balance. Compliance officers must justify budgetary needs while considering potential uncertainties.This also includes determining the size of margin needed to cushion the effects of irreducible risk.
Improving Alignment, Accountability and Assurance: These are the guardrails that protect business integrity within and across the organization.This involves fostering a proactive culture throughout the organization and ensuring that all stakeholders understand their roles.
Leveraging Technology and AI: Staying ahead of risk requires compliance officers to strategically leverage AI, technology, and management systems & controls. Incorporating these tools can streamline processes, enhance efficiency, and provide valuable insights for decision-making.
Elevating Compliance to Performance-Oriented Obligations: Moving towards Compliance 2.0 involves elevating compliance beyond mere conformance to meet performance and outcome-based obligations. This requires a shift in mindset and the adoption of operational systems and processes.
Managing the Vital Few: Deciding on the vital few objectives to monitor and manage (Pareto Rule, Theory of Constraints), is essential for focusing efforts on the most critical aspects of compliance. Compliance officers must prioritize and allocate resources to areas that significantly impact organizational and compliance success.
Pursuing Compliance Success: Ultimately, compliance officers face the ongoing challenge of determining what is essential to achieve compliance success. This involves continuous improvement, adapting to changing regulations and new obligations, and the adoption of proactive, holistic, and integrative compliance strategies.
The role of compliance officers is pivotal in keeping organizations operating between the lines and ahead of risk. While compliance challenges such as AI, cybersecurity, and ESG rightfully demand attention, it is equally crucial to view these issues through an operational lens. The operational challenges outlined—ranging from identifying and classifying obligations to the pursuit of compliance excellence—provide a comprehensive framework for compliance officers to enhance the effectiveness of all their programs and achieve compliance success.
Addressing these challenges requires a strategic approach, including the operationalization of obligations, organizational alignment, risk management, evaluation of operational risks, and the establishment of clear metrics for success. Governance of multiple programs, resource optimization, and budgeting within risk tolerance are additional complexities that demand careful consideration. In addition, fostering a culture of compliance, leveraging technology, and elevating compliance to performance-oriented obligations are key strategies for staying ahead of evolving risks.
As compliance officers navigate these challenges, the pursuit of compliance success necessitates continuous improvement, adaptability to changing regulations, and the adoption of proactive, holistic, and integrative compliance strategies. By focusing on the vital few objectives that significantly impact organizational success, compliance officers can prioritize efforts and allocate resources effectively.
In essence, the journey towards Compliance 2.0 involves not only meeting conformance requirements but also achieving performance and outcome-based obligations, marking a paradigm shift in mindset and operational processes. Through these concerted efforts, compliance officers play a crucial role in safeguarding business integrity and ensuring the sustained success of the organization in the face of uncertainty and risk.