navigating essential role board director regulatory compliance adaptation

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Navigating the regulatory maze: The essential role of a board director in regulatory compliance and adaptation

Jan 26, 2024 · Authored by John Romano, Mark J. Boettcher

The board of directors plays a pivotal role in shaping an organization's ability to comply with regulations and innovate beyond basic compliance. Their oversight spans various compliance functions, including the Three Lines Model — business operations, compliance functions and internal audit — which is crucial for comprehensive risk management and compliance.

Proactive governance and continuous education

Proactive governance entails more than oversight; it involves the board's intricate involvement in the development and execution of compliance strategies. The board's responsibilities include overseeing the integration and automation of compliance risk management activities, enhancing the organization's agility, sustainability, resiliency and effectiveness. A key aspect is setting clear strategies and establishing risk tolerances for management to execute organization-wide. In an evolving landscape, it becomes imperative for board members to continuously educate themselves about regulatory changes and emerging risks.

Risk management and compliance

Board responsibilities center around effective risk management, which requires the assurance of robust information flows for accurate and timely decision-making. Boards must hold senior management accountable within defined risk tolerance levels and maintain a rigorous risk and control framework. It is crucial to ensure the independence and effectiveness of the legal, compliance and internal audit functions, which are responsible for an unbiased evaluation of the organization's compliance posture. By fulfilling these responsibilities, boards can constructively contribute to the organization's success.

Access to information and informed decision-making

Regular evaluation of the diversity, skills, knowledge and experiences within their governance structure is essential for boards to ensure regulatory compliance. Comprehensive information, including enterprise-wide metrics and risk assessments, is necessary for informed decision-making. A culture of inquiry and skepticism is required for this type of oversight, ensuring that boards are active participants in governance rather than just ceremonial figures.

Setting standards and monitoring compliance

A significant role of the board is guiding the organization’s overall strategy and ensuring its compliance capabilities align with this strategy. It involves establishing a strong tone at the top, emphasizing compliance as an intrinsic organizational value. In doing so, boards can cultivate a culture where compliance is integrated into everyday business activities, naturally becoming a part of organizational operations rather than an enforced mandate.

Critical questions that boards should ask management

To maintain robust compliance, boards should regularly engage with management through critical questions. These questions and the minimum expectations for management's responses serve as a vital tool for boards to gauge the effectiveness of the organization's compliance strategies and operations.

Topic area	Question	Expectations
Compliance strategies	How are our current compliance strategies aligned with the latest regulatory changes, and what are our plans for adapting to upcoming regulations?	Management should outline current compliance strategies, showing alignment with existing regulations, and provide a clear plan for adapting to future regulatory changes, demonstrating foresight and preparedness.
Risk assessment procedures	Can you describe our process for identifying and assessing regulatory and compliance-related risks, and how are these communicated to the board?	A systematic approach to risk assessment should be detailed, including methods for identifying, evaluating and prioritizing risks. Communication methods should be transparent and timely.
Training and awareness programs	What training programs are in place to ensure staff at all levels understand regulatory compliance requirements? What training program does the board have in place to educate directors on ongoing risks and changes to the regulatory environment?	Expect comprehensive training programs to be regularly updated to reflect current regulations and cater to different levels of the organization.
Technology utilization	How is technology being used to enhance regulatory compliance monitoring and management?	Management should illustrate the exploration and use of advanced technology like compliance management software data analytics, explaining how these tools improve efficiency, accuracy and real-time monitoring.
Handling global regulatory variance	What strategies are employed to manage compliance across the different jurisdictions in which we operate?	Look for strategies that show an understanding of the complexities of global operations and respect for regional regulatory nuances, including the use of specialized legal expertise and localized compliance teams.

Key regulatory oversight takeaways for boards:

Proactive governance: Boards must actively engage in understanding and implementing compliance standards.
Continuous education: Ongoing education for board members is essential to stay informed about regulatory changes.
Risk management: Identifying and mitigating risks associated with non-compliance is crucial.
Communication and collaboration: Effective strategies require clear communication between the board, management, and compliance officers.
Adaptability and resilience: Boards should foster a culture of adaptability and resilience to navigate the changing regulatory landscape effectively.

Ensuring regulatory compliance and adapting to changes are crucial aspects of an organization's success, and the board plays a vital role in achieving these goals. By actively engaging in governance, staying up-to-date on regulatory changes, managing risks effectively, and setting clear compliance standards, boards can safeguard their organizations and promote long-term success.

For more information on this topic or to connect with a governance, risk and compliance professional, contact us.

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John Romano

Principal

Mark J. Boettcher