Regulatory compliance remains at the top of the CFO’s agenda, despite the continued shift in emphasis from governance to guidance as we transform the finance team.
In the past, compliance was often seen as a cost to the organisation with no visible benefit; a box-ticking exercise with little or no added value. However, a change in thinking and approach could quickly turn compliance into a competitive advantage.
Due to a combination of events, the level of financial regulation has continued to increase, and it shows no sign of slowing down. In recent years we have seen the enactment of Sarbanes Oxley (SOX), Solvency II and IFRS 16 regulation.
ESMA’s ESEF mandate is here already, albeit potentially delayed for a year in the UK. For publicly traded organisations, there are regulations set by the markets. While the impact on some sectors, such as financial services, is far greater than others, all organisations of any size encounter regulation, for example, HMRC’s iXBRL tagging and filing.
What we do know is that penalties for non-compliance or error can be high, and it presents a high level of risk to many organisations. To mitigate against this, larger organisations have a dedicated compliance function, and even a Chief Compliance Officer (CCO). In others, responsibility for compliance inevitably falls onto the finance team.
Many organisations have taken a reactive and siloed approach to each new regulatory directive. Some have invested in a single purpose technology and developed processes for producing regulatory reports. Leasing solutions that address IFRS 16 are an example of this. Others have utilised outsourcing services. An excellent example of this is the ESEF service that is offered by technology provider Certent.
“In the current climate, regulated businesses need a stepping-stone to meet compliance obligations without implementing an enterprise platform right away,” says Certent CEO Jorge Martin. “Our services team has more than 12 years of experience in regulatory reporting globally and are the same team that works with our Enterprise solution clients.
This solution will provide our clients with guidance and peace of mind in dealing with the new regulations.” As the regulatory world never stands still, a siloed approach can result in a continuous change to tick the compliance box. However, you can derive little additional benefit and ROI is low.
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Organisations need to recognise that the value of compliance can go well beyond simply ticking the box and mitigating risk. How do we do this? By investing in the right systems, and building an enterprise-wide platform for data, organisations can develop a single process, ‘one version of the truth’. As there is a high degree of commonality of data between most regulations, we can more easily satisfy the requirements of each regulatory body.
It should lead to a consistent compliance process, accurate reporting, with an audit trail to verify its credibility. Given the high number of transactions and the granularity of information required to satisfy the regulations, a technology platform approach is the only efficient way to achieve full visibility and assurance. This platform provides the flexibility to deal with the inevitable changes in current regulations and new and emerging requirements.
With the growth in reporting around environmental, social and sustainability reporting, we can see that regulatory compliance extends way beyond the finance team. These reports require both qualitative as well as quantitative information. Any approach that we adopt needs to address these additional requirements. Mark Rolfe FCCA, Director of Sales EMEA at Certent, says: “The breadth of financial and non-financial reporting required from organisations to satisfy an ever-increasing group of stakeholders can be very testing.
The penalties for error can be high, but perhaps more serious is the reputational risk of misstatement. There has never been a more critical time to invest in a reporting platform, such as Certent CDM, that can enable Compliance with Confidence.” In our recent webinar, we discussed the future roadmap for regulatory reporting with the Financial Reporting Lab team, part of the FRC. It works with companies and investors to improve the quality, usefulness and value of corporate reporting.
The Financial Reporting Lab will set out its vision in a forthcoming report on the future of corporate reporting due out late in 2020. It suggests that digitalisation and big data are likely to be further embraced. In this blueprint for the future, they envisage a digital-first reporting suite, rather than a single report that we see now.
It will help to meet the challenging narrative needs of an audience that is getting larger and wider. This includes internal and external consumers; employees, investors, customers and suppliers. Ultimately, the FRC is envisioning a self-service environment, facilitating personal customisation.
Regulation is not going away. If anything, it is likely to increase in the future. We are more closely monitored by those who interact with our organisations. It is vital to address your compliance processes now to ensure that regulatory change does not overwhelm your finance team.
“Our reporting platform brings together multiple data sources in one version of the truth,” said Rolfe. “A wide range of users can collaborate to produce internal and external reporting in any format required, including High Definition digital – the cutting-edge of modern reporting”.
By valuing data as a resource, companies can embed governance standards and build a ‘data culture’, with the support of technology. By embracing the power of data, regulatory reporting can help organisations learn more about their businesses. To extract the maximum benefit, adopt a culture that embraces the ability of data to drive insight and decision-making. If you do this, you can turn compliance into a benefit and a competitive advantage.