Article
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 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.
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.
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.
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.
