Compliance Department: Meaning, Functions & How To Create One

The term “compliance” practically means obeying or sticking to the rules that govern anything. While the modus operandi of a compliance department revolves around this theme, there is a lot more to compliance than just following orders.

Unfortunately, only a few understand the entire concept of a compliance department and its significance. Some do not even know if such a department is easy to set up. This guide explains it all. 

What is a Compliance Department?

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A compliance department is a section of any corporation that ensures that all activities within a company obey external and internal rules. 

In financial institutions, the internal responsibilities of a compliance department center on protecting investors and making the market as fair and transparent as possible.

Externally, this department ensures its institutions do not break the regulatory laws guiding customer communication, advertisement, conflict of interests, and asset management. 

Hence, it is safe to say a good compliance record is one way to ensure all-round safety and an influx of consumers. This is because it brings about support and confidence. 

SEE: Benefits Of Good Communications Skills

Types of Compliance

As far as organizations go, compliance departments deal with two major types of compliance – legal and ethical

Legal compliance means obeying the laws that guide a region in terms of activities such as labor, taxes, and more. 

Ethical compliance, on the other hand, is more of a subjective measure of what is morally right or wrong. It is the faction of compliance that handles activities such as insider trading, and bribery, to name a few.

5 Reasons You Need a Compliance Department

Compliance officers are professionals who occupy a compliance department. In the course of discussing why every organization should consider creating this department, both terms will be used interchangeably. 

A company may look good on the outside but bad on the inside or vice versa. This may be because they lack a compliance department to guide them. 

Let’s see some of the major reasons why you need one:

  1. A compliance department ensures your brand adheres to local and international regulations. In other words, it is the unit responsible for making sure a corporation avoids fine, legal suits, and reputation damage.
  1. Compliance officers stay up to date with the latest policies and procedures and communicate them to executive, mid-level, and entry-level employees. This ensures everyone is on the same page at all times.
  1. The department oversees outgoing materials like adverts and ensures they comply with regulatory policies.
  1. They conduct regular meetings with different departments, execute compliance audits and explain their findings to ensure unison. They also train employees to prevent a repeat of their mistakes.
  1. Compliance officers are great at assessing financial risks and creating strategies less prone to errors. This is also the go-to department for advice on the legal or ethical implications of any modification you wish to integrate into your business.

SEE: Tips You Need To Boost Your Career In The Corporate World

How to Create a Compliance Department

It can be frustrating to keep getting fined or renowned for discrepancies as a company. As an executive or an HR, creating a compliance department can get you back on track.

In contrast to what most people think, creating one requires just a few easy steps:

1. Start from the top

The most crucial step in creating a compliance department is getting a thumbs up from executives and the Board of Directors. A positive response from them means they are submitting to the program and the enforcement it issues.

Once the higher-ups agree, mid-level and entry-level employees are bound to also agree with compliance guidelines. This fosters the right culture at all levels and adds more value to the company.

2. Perform a compliance audit

There is “no one size fits all” when it comes to creating a compliance program. The type of program that features in an organization depends on its specific need. 

While such audits are usually performed by a third-party company, if there is no budget for that, you can make use of internal data in addressing relevant issues. A list of compliance issues you may have flawed includes:

  • Anti-bribery laws
  • Antitrust and competition laws
  • Securities law
  • Environmental regulations
  • Sexual harassment issues
  • Cyber-risk
  • Government contracting
  • Trade sanctions
  • Export Compliance
  • Internal theft

The goal here is to gather as much information as you need to create a compliance plan or program. It is advisable to start with the immediate compliance flaws of the company. With time, you can integrate the full program. 

A proper compliance audit record will also help in benchmarking, seeking new budgets, and explaining the well-being of the business to executives or the Board of Directors.

SEE: Best Ways To Train Employees

3. Appoint a compliance officer

After setting up the program, there is a need to assign one or two persons (compliance officers) to this department. The head of this unit should have direct access to the CEO.

These professionals must also be provided with the right resources to execute their job effectively. No business fails faster than one with an understaffed or underfunded compliance department.

4. Draft a code of conduct

A code of conduct or a business ethics policy is the most important document of a compliance department. This document usually contains the expectation for all employees in terms of behaviour and practices.

It states what would not be tolerated, how internal investigations would be carried out, and different processes for reporting findings. If employees obey the information disseminated in this code, it can make a compliance officer’s work super easy.

Problems only arise when employees fail to completely adhere to these rules or if there is no compliance department to enforce them. This document should also be easily accessible to employees. 

SEE: What Is Tertiary Deviance?

5. Coordinate internal teams

It is very common to think a compliance department is responsible for all compliance issues within an organization. This is very wrong. While they act as an overseer for the entire organization, they get their data from various subunits or internal teams.

For example, HR is responsible for allegations regarding sexual harassment, import, and export. IT (tech) manages data privacy and security. Internal audits fish out employee theft, just to name a few.

What a compliance department does is to ensure that all areas of company risks are fully covered. Then, they schedule regular meetings with different groups to ensure things are running smoothly.

The head of any internal team can also contact a compliance officer if there is anything to report.

What skills are required for compliance?

Essential skills every compliance officer must have include:

What are the elements of compliance?

The elements of an effective compliance program include:

  • Policies and procedures
  • Education and training
  • Chief compliance officer/compliance committee
  • Auditing and monitoring
  • Reporting
  • Enforcement 
  • Prompt response to issues

Which Organizations Hire Compliance Officers?

If your corporation is linked with a large number of regulated products or services like banks, pharmacies, and defense contractors, you need a compliance department.

Government parastatals also have an in-house compliance department responsible for training, investigating, and reporting activities that have flaws in the code of conduct.

SEE: Importance Of Training For Employees

FAQs

What are the duties of a compliance officer?

The primary duty of a compliance officer is to ensure that all the activities going on in a company are completely legal and ethical.

They develop programs and policies in this respect.

Who has responsibility for compliance?

The Chief Compliance Officers are responsible for any action taken by a compliance department.

They oversee issues regarding policies, procedures, and regulatory requirements.

Is audit the same as compliance?

No, they are not the same.

Internal audits evaluate past events for compliance while compliance monitors the series of events that follow a new rule or agreement.

Conclusion

A compliance department is what makes your business appear great externally and keeps your house in order internally. If you take it one step at a time, just as I explained in this guide, you can create one yourself.

The building blocks you need include understanding the various legal and ethical regulations guiding your industry, drafting the right policies and procedures (code of conduct), ensuring employees obey these rules, and ensuring any allegation is properly managed.

I hope you found this guide helpful. For a full brief on how to manage an organization, please what are management skills.

Thanks for reading.