Compliance – FSC TAX & LEGAL

Going Beyond Compliance by FSC

Boosting corporate performance through regulatory management

Across almost every sector, businesses are feeling the growing impact of regulation. In the financial services sector, for example, the light touch regulation of the pre-crisis era has been replaced with a new attitude to capital buffers and remuneration packages. In the energy sector, technology innovation and climate change mean new regulations are coming thick and fast. And in the life sciences, pharmaceutical companies need regulator approval to see returns on the billions they invest in developing new products.

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Yet across all of these sectors, there is a significant variation in the way businesses respond to the regulator’s attentions. While it is almost impossible to find a company that does not say it is committed to being compliant, very different attitudes lie behind this public front.

At FSC, our experience tells us that adopting a positive and proactive approach to regulation, and managing regulation as part of overall strategy, delivers the best results.

For companies that want to realise the financial advantages of effective regulatory management, we recommend action on three fronts:

Embed the management of regulation into overall business strategy

Non-compliance has the potential to derail the most ambitious of product development programmes or to render the boldest grab for market share unachievable. Regulatory management shouldn’t be stitched on as an adjunct to overall strategy. Its potential impact on future business performance means it needs to be as embedded in overall business strategy as financial management, quality management or risk management.

Minimise enforcement action by building a relationship with the regulator

The range and complexity of regulation businesses now face mean that enforcement action of some kind is almost inevitable. However, companies can minimise enforcement action by learning to ‘think like an inspector/supervisor’ – to understand what an inspector/supervisor will be looking for and how they can best deliver that. This requires a closer relationship with the regulator than many companies will have traditionally enjoyed. Companies need to view the regulator as a partner, rather than as an opponent, even to the extent of confessing incidences of non-compliance when they discover them and seeking the regulator’s support to correct them.

Establish a proactive attitude towards regulation among senior management

For regulatory management to be effective, it needs to be part of the culture of a company – and, for this to happen, the right attitude needs to come from the top. There’s every reason why senior management should take regulatory management seriously and go beyond a commitment that is more than ‘doing the right thing’. Regulation has the potential to enhance business, pointing it towards sound governance, effective risk management, fair treatment of customers and, ultimately, strong performance. Any credible management team should have a policy on such a key issue.

The degree to which these strategies affect performance varies from sector to sector, but across all the sectors we looked at – financial services, life sciences and energy – the picture was consistent. Adopting a strategic, rigorous and positive approach to regulatory management is associated with superior financial performance.