With global footprints and exposure to global jurisdictions, investment management organizations confront more legal and reputational risks than ever before in maintaining compliance with various laws, rules, and regulations worldwide. 

The compliance operations of asset managers are continually pushed to manage the low appetite for this risk to avoid reputational and financial damage. Failure to meet such duties has severe consequences, which are regularly reflected in the news, putting additional pressure on Trustees and Boards of Directors to manage this risk.

This, however, is a challenging task. Compliance departments must cope with continuing legislative changes as well as the introduction of new laws. It is tough to keep track of changes, especially at the global level. Furthermore, asset managers are typically presented with a legacy of internal operational challenges, manual processes, poor collaboration with third-party solutions, and outdated technology. Unlike other operational costs, compliance expenditures also tend to scale with the business.

A solid compliance management system is critical for protecting the business from regulatory and reputational risks. For many firms, establishing a unified global compliance program makes sense to provide a long-term, comprehensive, and scalable solution that ensures compliance, mitigates risk, controls costs, and allows the business to grow. 

As businesses and regulatory needs increase, firms must frequently invest in technologies and strategic resources. Conducting an independent assessment of the compliance program is a good start in determining whether the current program is adequate and identifying the current program's strengths and limitations. Being proactive in identifying current program shortcomings can save businesses millions of dollars in penalties and brand damage.

This article was contributed by our expert Amit Kalra

Frequently Asked Questions Answered by Amit Kalra 

Q1. What are some of the challenges currently faced by the asset management industry with compliance systems?

Legal and compliance requirements are complex, and discrepancies in requirements from different jurisdictions make it even more challenging to stay on top of new requirements and revisions to current ones. There is no single market system that can handle everything.

Q2. What are the key components of the compliance management framework?

Fit-for-purpose compliance plan, proper governance through accountability and supervision, compliance registers, compliance calendar, automation, evaluation, and controls are some of the key elements of the Compliance Management Framework

Q3. What are some technologies and strategic resources used to tackle compliance challenges?

When it comes to putting the framework into action, there is no one-size-fits-all answer. The strategy must be developed in accordance with the complexity of the business, using a combination of in-house and outsourced solutions.

Q4. What are the different types of compliance risks?

In the context of investments, reputational damage, and financial consequences in terms of potential penalties are critical risks, but they intersect with all other significant material risks for the business. Such instances include new ESG compliances, AML, fraud, illicit trading, etc.