A task that is increasing in importance for companies.
Shubha N. Janardhan & Dr. Nadadur Janardhan
October 2008
COMPLIANCE IN A HIGHLY REGULATED ENVIRONMENT
In recent times there has been a paradigm shift in many economies in the way that compliance and business growth are approached through self regulation. It is a shift that continues to be driven by demanding performance expectations, increasing stakeholder demands and growing public scrutiny after some spectacular failures around the globe. The role of being good corporate citizens through integrity driven governance models are becoming a necessity.
A highly regulated environment places a premium on solid performing businesses that are well-managed, conferring a competitive advantage on businesses that create and maintain a culture of "integrity-driven performance". However, it is also the case that managing the shift to this new level is not simple. It presents serious challenges not only for business, but for governments, regulators, investors and other stakeholders. Organizations in the financial sector in India find themselves in a paradigm changing cusp – one that could make or break their future growth. Regulators in India are thereby providing flexibility to the Insurer with caution, owing to Subprime Crisis of US as a preventive measure. The Insurer’s investment systems should address / demonstrate, risk management techniques which takes into consideration the issues / shocks like the recent sub-prime crisis in United States of America. While the entire institution is moving towards Solvency II reforms, organizations today have the chance to empower themselves to create self-regulated frameworks that suit their own work culture. They are at a point where they still have an option - the choice to self-regulate themselves and offer frameworks that are not imposed.
New levels of accountability, which come not just from new laws and regulations, but also from the expectations of a broader stakeholder group, have elevated the concerns at board level of ensuring that effective, robust and reliable governance and compliance tools are in place and being utilized. There is also an increased awareness that this needs to be underpinned with the right attitudes and behaviors to ensure people will still act in a manner which protects the organization’s reputation and ultimately the wealth of the individual investor.
Regulatory compliance and reporting needs to be viewed as a natural extension of the governance duties shouldered by top management and corporate boards to ensure end investor protection. Moreover, only good governance can ensure that compliance is aligned with the company’s business objectives and risk management strategies — and is thereby adding real value (and not just cost) to the organization. Ultimately, the goal is to ensure that compliance and conformance ensure robust performance.
ACCOUNTABILITY IN TURBULANT TIMES
New levels of accountability, which come not just from new laws and regulations, but also from the expectations of a broader stakeholder group, have elevated the concerns at board level of ensuring that effective, robust and reliable governance and compliance tools are in place and being utilized. There is also an increased awareness that this needs to be underpinned with the right attitudes and behaviors to ensure people will still act in a manner which protects the organization’s reputation and ultimately the wealth of the individual investor.
Regulatory compliance and reporting needs to be viewed as a natural extension of the governance duties shouldered by top management and corporate boards to ensure end investor protection. Moreover, only good governance can ensure that compliance is aligned with the company’s business objectives and risk management strategies — and is thereby adding real value (and not just cost) to the organization. Ultimately, the goal is to ensure that compliance and conformance ensure robust performance.
WHAT IS THE COST OF NOT COMPLYING?
In this environment of rapid change and what can seem like ever increasing demands, management often finds it difficult to fully comprehend the total cost of compliance. The need for self–regulated bodies to ensure brand protection and compliance are imminent. It sees the potential for costs to escalate without the organization realizing the full benefit of such investments. Additionally, there is the need to provide more relevant and timely information in the public arena. This has heightened the focus on transparency, as well as an increased need to provide accurate and periodic reporting of issues/events and certifications. Taking this into account, insurers should also realize that strict self regulation has also has its rewards. In the days to come, the Regulator could rank the Insurers based on Governance issues and in turn will depend on the principles of Corporate Governance measure that are in place. Decreasing the odds of being in the wrong side of the regulator’s gaze, would only increase the insurer’s credibility and gain the public trust that is so imminent in this business environment. Accordingly, as a simultaneous exercise, organizations should realize the timelines in which they are to awaken and initiate self regulatory measures within their organization. One such timeline is set by The Chartered Accountant Institute of India, which had fixed the year 2011 for IFRS compliance. The Insurance Regulator too had constituted committee on IFRS compliance and would push Insurers to comply IFRS requirements within the overall time frame set by The Chartered Accountant Institute of India. The cost of non compliance in these matters could mean the disability of the Insurer to conduct the business respective markets, in the way it is mandated. Such deviation could lead to violation of Regulatory provisions. Hence all Insurers should internally, in the 1st stage, get geared up for IFRS compliance. This leads to the protection and continuous enhancement of the organization’s trust in the investor and regulator’s eyes.
IMPORTANCE OF COMPLIANCE
The core of compliance activities is the protection of the company’s brand and the protection for the individual investor. Through lack of complying with the local regulatory norms, organizations are placing themselves in a high risk category. Not only will they not be able to gain the trust needed to increase their market presence, but also will fall short of complying with the law.
About the Authors:
Contributors to the development and analysis of this survey include Dr. Janardhan and Shubha N. Janardhan, Chairman and Director of Operations, respectively, in Haselfrë's Delhi office.
