By Christy Xia
For organizations navigating through a volatile market, predictable and stable trust throughout the operation is essential. Part of organizational activity that can help build trust in conducting business and drive operational efficiency is compliance. The essentiality of compliance and regulation is not new.
Taking a look at the Securities and Futures Commission of Hong Kong published data and guidelines, the regulatory authority holds strong stand position in penalizing large amount fines to firms that are in breach with code of conducts or lacking internal operational risk management controls.
The regulations protect investor protection, building investors’ confidence and maintaining market integrity. There is also a need to build risk and compliance culture within industry and the industry practitioners. The demands placed on firms by regulations and laws are increasing. ‘‘When you think compliance is costly – try non – compliance’’.
Compliance is more than just per regulators request but also an assurance that risk management, governance, and internal control process are operating effectively. Considering the Silicon Valley Bank, it is a recent collapsed bank in the US market in 2023, it represents the largest bank failure since the financial crisis of 2008. Its main depositors were from tech start-ups and was the largest bank by deposits in Silicon Valley. The proximate cause of the bank’s failure was inadequate liquidity when one concentrated sector depositor of tech startup companies withdrew funds, the bank had to sell its bond holding that incurred a huge loss, but the underlying issue was the management failure to manage their risks and did not recognize the extent of vulnerability as the banks grow in size and complexity of its capital operation.
Compliance procedures are designed with people and firm centered principles. Effective strategies have been becoming a key determinant for the financial market and company’s performance and stability. Compliance is to promote the safety and soundness of financial market operation and reducing risks. Knowing the reasoning behind compliance, Stakeholders across the chain who understand the purpose of compliance activity are more likely to engage effectively with the process and less likely to breach the rules.
Compliance is predictive and proactive. Building trust between stakeholders takes years to earn and establish, but it can also be lost quickly. Establishing stakeholder trusts can be proved through effective risk and compliance programs. A good compliance program provides the assurance needed for their business to operate in a stable and predictive manner, taking initiatives regarding new regulatory changes and build its framework accordingly and constructively.
Building compliance culture
In the long run, building a compliance culture within the organization also contributes to business practice success. Ensuring the firm is compliant with the regulation and law; ensuring every operation a company takes complies with the overall policy and adhering to the value of the company – it is doing the right thing for the greater good of the company and society. A strong business compliance is also one that fosters and celebrates doing the right thing – an environment that constantly enhances integrity and earns or maintains trust.
Compliance is no longer an abstract, but through approaches in regulatory frameworks, a risk minimizing method and data driven process. Firms can thus grow and become more confident in their ability to operate and provide values that people and stakeholders needs.
