Understanding the importance of compliance 

In particular, regulatory expectation within the asset management industry is increasing. It is clear that the FCA has asset managers firmly within its sights, and understanding regulation and compliance is now more important than ever. New rules continue to be implemented and there is a direct relationship between compliance and asset management because both areas need each other to successfully maintain a property. Asset managers who don’t have compliance at the top of their agenda face a very real risk of finding themselves the subject of enforcement action.

Managing the risk

Compliance is key to identifying and mitigating risk, as well as safeguarding a business from fines and protecting the brand’s reputation. However, one of the biggest issues surrounding compliance is that it is often misunderstood. For example, increasing numbers of asset managers and corporate lenders overlook the need to ensure compliance in contracting companies, without realising that this can make them vicariously liable for their contractor’s actions.

Let’s say that a contractor is strimming over a grassed area and a stone is caught and hits someone. If it turns out that the contractor is not compliant, it is the manager at that property who would be accountable. It is an asset manager’s own responsibility to carry out checks and risk assessments for all contractors, and ensure contractors have the necessary licences in place. Compliance in contracting companies reduces the corporate risk to asset managers and lenders, and gives them peace of mind.

It’s also important that the industry remains ahead of the game, particularly now that risk management controls are being subject to increased scrutiny. It isn’t enough just to meet legislation and tick a box; companies need to be carrying out internal audits of their procedures as well as being prepared for external audits by the ISO.

Asset managers can use audits to help focus on the areas that could make a critical difference to the business – both positively and negatively. They should then ensure they record evidence of the measures taken so that, should an issue arise, they can easily demonstrate compliance to regulators.

Regulations are also evolving, which is something asset managers need to be keeping a close eye on. Failure to adapt to the changing regulatory requirements could have serious consequences for firms and being unaware of changes is not a defence. Asset managers should be constantly checking legislation and taking steps to improve and increase their level of expertise. It’s also a good idea for businesses to benchmark themselves against their own standards and the standards of their clients.

Ultimately, a company’s reputation is on the line, not to mention the unwanted costs the business will be hit by if it is found not to be compliant. As well as being fined by the FCA asset managers must consider fines from the Health and Safety Executive (HSE), costs associated with managing the negative publicity from a PR point of view, and a fee for intervention.

Not just ‘red tape’

A significant problem within the field of compliance is the general attitudes many people have towards regulation. Business leaders often deem the burden of regulatory compliance, or “red tape”, to be impractical or unnecessary. However, if businesses take a positive approach to compliance it is a chance to professionalise the industry.

The majority of compliance measures deliver a benefit, whether that’s ensuring safety, improving quality, protecting consumers or reducing environmental impact, to name just a few. Moreover, a compliant business is usually synonymous with one that is well-run. If handled correctly, compliance can create a competitive advantage through improving corporate value, transparency and reputation.

Businesses can use the regulatory curve to drive improvement and innovation. The most successful companies will see the opportunity to challenge their current procedures and make changes which will benefit and professionalise the business in the long term. An internal audit, for example, will not only prepare a business for its external audit from the ISO but is likely to embed compliance into business practices and raise standards. ‘Self-regulation’ can also help establish a better understanding of the outcomes each measure is trying to deliver.

The regulatory expectation on firms is unlikely to subside, but should be viewed as a green light to increased professionalism rather than a distraction from business performance.