Implementing compliance policy internationally: the success factors

7 min reading time

Companies do not always succeed in converting their policies into frameworks that are workable in practice. It is often only after an incident or an instruction from a regulator, that it becomes clear that the policy was not implemented as it was intended. Internationally operating organizations are faced with the additional challenge of greater distances: both literally and figuratively speaking. Differences in laws and regulations, organization and culture can complicate the translation of company policy into practical and verifiable frameworks.

Recently, Charco & Dique has supported several financial institutions – mostly banks – in implementing their compliance policy and remediation plans in their foreign branches. In this article, we have summarized our collective experiences. We outline the challenges together with practical advice on how to turn the implementation of compliance policy in an international context into a sustainable success.

Tackling international compliance bottlenecks

What potential challenges can organizations be faced with when implementing compliance policy across national borders?

An overview:

  1. The interpretation of laws and regulations varies from country to country.
  2. The local regulator influences how strictly a branch can (and will) comply with the corporate policy rules.
  3. Policy monitoring is limited because the compliance function is organized differently.
  4. Processes and systems impede correct implementation.
  5. The rollout of policy does not match the common way of working locally. This can lead to incomprehension and – unintentionally – to careless implementation of corporate policy rules.

In this article, we provide a more detailed explanation of these potential bottlenecks. In addition, we explain our approach to analyzing and solving these bottlenecks.

Bottleneck: Ambiguous interpretation of laws and regulations

Financial supervisory laws and regulations are more and more based on international/European legislation. However, EU legislation still needs to be transposed into national legislation by every individual country. This can result in different interpretations and distinct national laws and regulations.

For example, currently the concept of pre-marketing leads to a lack of clarity among investment institutions and companies as to whether or not they are subject to licensing or registration requirements.

Altogether, this complicates the process of defining company policy and setting-up unambiguous procedures across national borders. It also makes it difficult to demonstrate adherence to compliance standards locally and at the corporate level.

Our approach

Our approach is aimed at comparing all legal frameworks applicable to the organization, according to local laws and regulations. The main focus is on the laws and regulations of the country where the license is issued and where the central regulator is seated. The location of the branches (inside or outside the EU/Single Supervisory Mechanism) is also taken into account in the analysis.

This analysis of the differences in legal frameworks is the basis for a local rollout or remediation plan. Material differences are recorded at corporate level. In some cases, this can lead to procedures in which countries can request a waiver for specific corporate policy rules.

Bottleneck: The influence of the local regulator

The way in which local regulators enforce local laws and regulations influences the willingness and ability of individual branches to comply with central policies. For example, financial (supervisory) legislation in the Netherlands is often principle-based. In other countries, a rule-based approach is more common. In these countries, the branches often have a greater need for specific instructions. In general, we notice that the smaller the risk of enforcement by a local supervisory authority, the bigger the risk that a local organization will adopt a “looser” approach to central policy rules.

Another scenario is that rules in the country where a branch is located, deviate from the standards set by the central regulator and by the corporate policy. For example, the definition of persons expected to be PEP screened (Politically Exposed Persons) differs in some EU countries compared to the Netherlands. The same goes for the rules defining which products are in scope for Customer Due Diligence (CDD) and those that can be excluded. In our experience, this can lead to discussion and confusion at the corporate level about how policy should be applied (and how strictly so).

Our approach

Analysis of the practice of the local regulator is explicitly addressed when identifying gaps in local jurisdiction. For each country or branch involved, we show:

  • whether a local banking license was issued;
  • the specific services that this license applies to ;
  • how local laws and regulations, standards and guidelines compare to those in the supervision of the central regulator.

We also check whether dispensations or exemptions are applicable. Based on this analysis, we define actions to align the activities and procedures of the foreign branch with the central policy.

Bottleneck: The position of the local compliance function

It is important to assess whether there are any differences in the activitities and responsibilities of the compliance function in a foreign branch compared to the head office. These differences are often related to the size of the branch and the span of control of the compliance officer. We have seen  branches where the compliance officer spends most of their time on first line activities, such as CDD. In some countries, the compliance tasks are performed in the risk domain. The compliance function can also be impacted by specific local legislation. For example, in a number of European and non-European countries, the second-line function is personally liable (e.g. UK, Turkey, USA) in the event of a malpractice.

Our approach

Assessing the local position of a compliance officer enables us to identify the risks and key success factors of a compliance related project and to adjust our approach accordingly. In a remediation program, for example, the role of first-line problem owner and the role of the person responsible for independent monitoring should be separated before starting the program. It is also advisable to actively involve the compliance officer in carrying out cross-border gap analyses. These insights can be used by the compliance officer when performing second-line monitoring and advisory tasks.

Bottleneck: Differences in working methods and culture

As a Spanish colleague pointed out: ‘I love working with Dutch people, you are so well organized. But don’t tell me what to do all the time. And stop sending me spreadsheets to fill out.’

The quote above illustrates the way in which Dutch people are used to working together: with formal roles and established lines of communication. Efficient and predictable. It also shows that this way of working does not automatically lead to acceptance at foreign branches. Sometimes it is necessary to take a different decision-making processes into account. For example, in Scandinavian countries, achieving consensus is an important pre-condition for proceeding with implementation.

It is also important to take into consideration that local standards and values can differ considerably per country. For example, tax avoidance is not considered equally undesirable in every country.

Our approach

Our approach consists of gaining a broader understanding of local working methods. The focus lies on those elements that are crucial to the success of policy.

  • What do the local processes look like?
  • Which systems and documentation are used?
  • Why do the employees in a local branch work in a certain way?
  • What do they focus on?
  • What is the decision-making process and how are decisions communicated?
  • Who are the most important stakeholders?
  • What is the level of knowledge about laws and regulations and, more importantly, what is the attitude towards complying with laws and regulations?

On the one hand, understanding the local way of working provides a view on the operational gaps that need to be closed in order for compliance policy rules to be effective. On the other hand, this approach gives the opportunity to increase local awareness by offering training on the job at the same time. In doing so, we focus on sharing best practices throughout the company.

Investing in the local workplace also has long term advantages: it makes it easier to stay in touch and discuss potential bottlenecks with head office.

In our experience, remote communication is possible. Nowadays there are sufficient (electronic) means of communication available to communicate between branches from a distance. Nevertheless, physical presence in a local branch can be an in-depth investment that will reduce the risk of later (repair) costs. It can also reduce potential language barriers.

Want to know more?

Charco & Dique uses an integral context analysis and assessment when rolling out a company policy across borders. By integral we mean: with active involvement of the most important local stakeholders and focus on all relevant underlying processes. The key of our approach is to unite knowledge from different branches and levels in the organization. In this, we combine our compliance knowledge with our business and project and change management experience.

Charco & Dique has extensive experience in supporting internationally operating financial organizations. Our support includes:

  • Establishing global corporate policies on compliance subjects  (such as Anti Money Laundring);
  • Implementing policies, systems and procedures globally;
  • Guiding compliance remediation projects;
  • Filling in compliance management positions (on an interim or long term basis)

Wondering what we can do for you? Feel free to contact us.

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