Unintentionally making an error that is picked up by the financial regulator or other authorities can damage a business, damage a Financial Director’s reputation and is likely to be costly. Find out the most common major regulatory breaches and our top tips to help keep your business compliant
Regulations are regularly updated so it’s imperative that you are aware and act on these changes. This may be complicated if you work across multiple regions and countries but staying up-to-date with relevant financial regulations is crucial to ensure that your compliance strategy is relevant and pragmatic.
What are the most common major regulatory breaches?
In the UK, a FD’s worst nightmare is likely to be from breaching Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA) requirements. This many include:
- Insider trading: by failing to prevent or detect staff using privileged information for trading, which can result in criminal charges
- Financial misreporting: submitting inaccurate regulatory returns or misleading financial statements
- Systems or control failures: having inadequate risk management and/or compliance frameworks
- Client asset (CASS) breaches: mishandling client money or assets.
What are the impacts from breaching regulatory requirements?
Impacts from breaching financial regulatory requirements can be severe both personally and for the company involved. Individual fines can reach millions of pounds and FDs may even face a potential prison sentence if the breach is particularly serious. Whether convicted or not, a FDs reputation is likely to be seriously damaged and it is often a career-ending moment.
The company may also face substantial fines and is likely to face mandatory external monitoring and enforced changes to business practices. Again, reputational damage is likely which will impact clients and probably, the share price.
What can a FD do to prevent regulatory breaches?
Here are HBs top tips for FDs to help prevent regulatory breaches. Of course, you cannot account for every action that may be taken but if a breach occurs and is investigated, having these procedures in place may help mitigate any consequences. We strongly recommend that you speak to your own accountant and legal advisors too.
- Stay up-to-date about the financial rules that apply to your business
HB’s Top Tip: Read industry publications or attend conferences, or sign up to alerts from regulatory agencies. You can also use compliance management software or hire experts to personally inform you about changes.
- Implement robust compliance frameworks with regular testing by independent, third parties or internal teams
HB’s Top Tip: implement a “three lines of defense” model where each line has clear responsibilities and reporting channels. Holding monthly cross-functional meetings between all three lines should quickly identify any issues.
- First line: Business units conduct daily controls and checks
- Second line: Compliance team provides oversight and monitoring
- Third line: Internal audit conducts independent testing.
- Keep clear documentation of decision-making and risk assessments
HB’s Top Tip: create a standard template that captures information about each major financial decision. You could include: the rationale behind the decision, a risk assessment, the stakeholders you consulted, any supporting data or analysis, and which regulatory implications you have considered. Ensure a clear sign off on these decisions and store the template centrally.
4. Ensure that your Board and committee considers regulatory requirements during meetings
HB’s Top Tip: develop a dashboard for board meetings that tracks any outstanding regulatory actions and upcoming regulatory changes, as well as any near miss incidents and key risk indicators. You may wish to colour code key risk indicators using a traffic light scheme to focus attention.
5. Invest in an automated systems and controls reporting system
HB’s Top Tip: an automated system flags up things such as unusual trading or transaction patterns and data breaches or inconsistencies. Daily automated reports shared with the relevant stakeholders may help identify any out of the usual patterns, which will allow you to investigate further.
6. Staff training and company culture
HB’s Top Tip: Spend time talking about regulatory breaches from other companies and brainstorm if and how that could happen within your organisation. Not only does this keep everyone focused on the importance of compliance, it also helps to create an open, transparent company culture. If appropriate, share near-miss activities from your company and practice how to escalate any suspicions.
Remember that prevention is always cheaper than cure in regulatory matters. Many firms have found that investing 1% more in compliance infrastructure saves 10% in potential fines and remediation costs.
How can we help?
HB Accountants is a registered auditor with ICAEW and our team has a raft of experience from working with organisations large and small over the past 100 years. We are always available to support your accountancy needs, support regulatory compliance, and discuss ways to boost your productivity.
If you would like to learn more about the services that we offer, discover how we can give you real confidence in the future of your business, or if you are a larger business that requires auditing, then contact us today. We’re accountants for business and we are here to help you grow efficiently. .
The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained her
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