What is a Compliance Management System (CMS) & Why Do You Need It?

In short, a Compliance Management System (CMS) is a business’s farsighted tool that integrates both internal and external compliance efforts with rules and regulations.

It’s a comprehensive integration of written documents, functions, audits and controls that help an organisation to comply with regulations and minimise consumer dissatisfaction. Woven into every function of an organisation, the Compliance Management System is always at play in every corner of every department.

No organisation is exempt from regulations, standards and ethical practices that apply to every organisation regardless of its industry.

As the enforcing bodies around us continue to flex their judicial muscles, each organisation should be familiar with and act in accordance with their CMS.

The nature of an effective CMS is twofold and should aim to provide solutions to external risks as well as internal governance.

In other words, it should identify regulatory bodies and their sources and measure their impact on business. It then communicates policy updates to procedures, controls and training. Meaning a business is constantly in compliance with ever-changing regulations.

What makes an effective CMS?

An effective compliance system will keep your organisation on the right side of the regulations governing your industry. It’s a visual insight into your organisation’s compliance efforts and without one, it’s significantly harder to track and monitor who is doing what, when and how within your organisation- and everyone has a role to play.

A good Compliance Management System will proactively address risks that are yet to cause damage whilst simultaneously meeting multiple regulatory requirements.

Chief Compliance Officers aren’t the only ones responsible for managing the compliance of an organisation. All employees should have a sound understanding of their contribution within the compliance structure. However, almost 30% of CCOs haven’t formalised compliance roles and responsibilities for their staff (KPMG).

Why you need an effective CMS

A Compliance Management System serves as a central place where all data is stored, managed and shared between stakeholders. Organisations have the ability to refine and restrict access to data by employees, ensuring specific members of the organisation have access to the intended information they are authorised to have.

For large companies with multi-departmental systems, proper dissemination of information allows for effective workflows and eliminates disputes over misused information.

One of the main reasons is simply because you have to. Violations of compliance regulations can lead to legal punishment including fines. Incorporating a CMS into daily procedures can minimise risks pon violations.

In addition to legal and regulatory requirements like the Payment Card Industry Data Security Standard (PCI DSS), General Data Protection Regulation (GDPR), plus safety and technical requirements along with countless others; internal risks are mutating by the minute.

Just as we have minimal impact on changes and developments in external policy regulations; the very nature of a business’s internal structure is constantly changing for better or for worse. Compliance with these changes should be front and centre in all roles across an organisation.

Operational Risk

Operational Risk assesses the prospect of loss through inadequate procedures, systems and policies. Such risks are materialised through employee errors, system failures, fraud and cybersecurity threats and essentially anything that disables business procedures.

All compliance management systems will include remedial steps to eliminate risk and provide competent responses. Without it, operational risk has the potential to sabotage reputation and cause financial damage.

Consider dated IT architecture as an operational risk. If left untreated, it will only become more fragile and weak, leading to perpetual cyber threats. All of a sudden, data and company systems are compromised and in need of immediate and costly damage control. Meaning the time and cost of repairing this damage is taken away from other business priorities. Coupled with growing business demands and an inability to meet them, the organisation is caught up in a whirlwind that could have been avoided with a strong Compliance Management Solution.

This graph presents the key risks to the UK financial system, as of the second half of 2016, 2017 and 2018 (Statista). Its a visual representation showing trends in perceived risks to the system that will ultimately disrupt all industries and should, therefore, be factored into every CMS.

Financial firms, in particular, should take note of both geopolitical risk and cyber-attack increasing to 62% of respondents ranking them as key risks in 2018. As such, effective operational risk strategies should take preventative measures to ensure these risks do not disable business.

As such, risk management programs that promote and develop business continuity and disaster recovery precautions within compliance management systems helps to communicate and minimise risk.

Internal Audit

Just as an organisation should consistently conform to government rules and regulations, it should always be operating in accordance with its own organisational criteria. An Internal Audit, as part of a CMS, monitors and analyzes business operations to determine the level of conformity and effectiveness of operations.

Part of the internal audit plan is designed as a pre-emptive measure to maintain efficiencies and financial stability. As such, it provides assurance that an organisation’s operational risk management, governance and internal controls are operating effectively.

Auditors examine operational processes to find discrepancies between them and what they were designed to do. Such issues are flagged in final reports issued to the leadership in order to improve processes.

Your CMS checklist

There’s little use in having a Compliance Management System in place if its not fit for purpose. Your CMS should be achieving a set of measurable goals to ensure that it’s protecting you and your business.

  • It should be keeping all employees up to date on compliance responsibilities and each individual should have a sound understanding of their role in the compliance structure.
  • It should have the capacity to check all processes to ensure they are compliant.
  • It should be able to detect faults and provide corrections and updates to all procedures and systems as necessary.
  • It should depend on and utilise the power of the companies board to manage and enforce all compliance requirements.
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