Compliance in the spotlight in an era of expanding regulatory scrutiny
by Pushpendra Mehta, Executive Writer, CTMfile
Most Chief Ethics & Compliance Officers expect the focus on “Compliance to increase based on expanding regulatory expectations and scrutiny, with the greatest pressure to enhance coming from their boards and regulators”, said the KPMG 2023 Chief Ethics & Compliance Officer Survey Report.
The survey report, titled Anticipating more scrutiny: Forward focus for Ethics & Compliance, draws on the perspectives of 240 Chief Ethics & Compliance Officers (CCOs) from the largest companies operating in six industry sectors. The respondents provided insights into their present priorities and a two-year projection on key areas of ethics and compliance.
As new regulatory obligations continue to present significant challenges to CCOs’ compliance efforts, the KPMG 2023 CCO survey report reveals that a majority (52%) of ethics and compliance leaders plan to demonstrate the “Business value” of compliance over the next two years by “Promoting compliance culture as an enterprise-wide strategy.”
In the spotlight: compliance faces growing pressure from boards and regulators
CCOs are considered the stewards of a corporation's ethical culture, responsible for maintaining compliance and upholding the financial integrity of an organization.
Given the rise in regulatory expectations and scrutiny in the US, nearly three-fourths (73%) of surveyed CCOs face increased pressure to enhance compliance.
Level of compliance focus
Source: KPMG LLP
The most pressure for advancing corporate compliance comes from their boards (53%) and regulators/examiners (49%). In addition, investors/shareholders (39%), employees (36%), customers (34%) and general public perception (27%) intensify the pressure on companies “(and hold them accountable) for their strategies, operations, and compliance activities”, observed the survey.
Drivers of compliance budget increases: technology, cybersecurity/data privacy and data analytics
Amy Matsuo, Principal and National Leader, Compliance Transformation & Regulatory Insights at KPMG US, remarked that “We are in a period of discordant and highly sensitized public policy—as well as intense regulatory activity—affecting all industries. Compliance feels acute pressure to enhance—not only to be more effective and efficient—but to also meet increasing board and regulator expectations. Technology and data analytic investment to the Ethics & Compliance function is no longer a 'nice-to-have;' it’s a necessity to help mitigate, measure, and identify risk.”
Source: KPMG LLP
Over 63% of CCOs polled are now planning to augment their compliance technology budgets, driven by the need to bolster technology and operational resilience. This includes risk assessments, monitoring and testing, third-party risk management, and governance practices to maintain critical operations.
Moreover, the elevated regulatory scrutiny involving emerging technologies, privacy and data protection has added another layer of pressure on corporate compliance budgets, causing budgetary increases in cybersecurity/data privacy, data analytics, process automation and artificial intelligence (AI). This prioritized investment is also expected to help companies adopt a data-driven approach to compliance.
The survey further explains that, notwithstanding the prevailing economic uncertainties, the majority of CCOs (56%) expect to hire more full-time employees (FTE) in the coming year. They also acknowledge that attracting and retaining talent pose significant workforce challenges within this domain. “This commitment to retain and/or expand Compliance FTEs demonstrates the importance of, and commitment to, Ethics & Compliance”, the KPMG 2023 CCO survey report adds.
In conclusion, CCOs are enhancing their ethics and compliance functions, operations and analytics by shifting from a reactive to a proactive stance.
This will help them develop a strong compliance culture that asks the hard questions, targets improvement in processes related to industry-specific regulations, and also hones their ability to identify and build “Controls to mitigate a new series of potential legal, reputational, and compliance risks”, the survey report suggests. When that happens, more CCOs can become a true “value-add” to their organizations.
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