7 Legal Elements of an Effective Compliance Program | MinuteBox Cloud Entity Management

7 Legal Elements of an Effective Compliance Program

Corporate compliance refers to internal policies and procedures enacted by a legal entity in response to federal or provincial laws and regulations. An enforced compliance program detects and prevents any violations of those regulations, protecting the corporation from any fines or criminal indictments that may occur as a result of those violations.

So, how does a legal entity enact an effective corporate compliance program? We’ve done the research, and we’ve identified seven elements of an effective compliance program that all legal entities should administer in their own corporate structures. Let’s break down those seven steps.

Why is corporate compliance important?

Before diving into the specific sequences of a compliance program, let’s begin by answering a very fundamental question. Why is corporate compliance so important in the first place?

A corporate compliance program helps organizations prevent any discrepancies that could result in non-compliance penalties for the business. Canadian regulators are cracking down on white collar crimes, targeting organizations that violate compliance policies.

Crackdowns are being implemented in response to the Cullen Commission. The commission’s report was the culmination of years-long money laundering inquiries in British Columbia. The report’s recommendations were submitted to the federal government in Ottawa.

Following the submission, the RCMP was tasked with enforcing new regulations against complex financial crimes. This resulted in the creation of the Integrated Market Enforcement Team’s Special Advisory Group and the Canadian Financial Crime Agency. The purpose of these institutions is to hold accountable any individuals or legal entities that commit fraud, money-laundering, insider trading, organized crime, and other financial crimes that put Canadians at risk.

What is the purpose of a corporate compliance program?

The federal government and the national police force are enforcing compliance laws to reduce the amount of white collar crime across Canada. Organizations that lack effective compliance policies are at risk of being swept up in these investigations. If there is evidence of deliberate malfeasance, businesses can be subject to steep financial penalties for non-compliance.

Therefore, the purpose of a corporate compliance program is to mitigate risk and protect organizations from severe, long-term financial losses. An effective corporate compliance program sets boundaries to enforce permissible conduct and good governance.

7 elements of an effective compliance program

So, what are the 7 elements of an effective compliance program? Here’s what you need to know to create a corporate compliance program that will protect your organization from unwanted regulatory investigations, penalties, and other long-term consequences.

  1. Documented policies and procedures

Documentation of policies, procedures, rules, and controls demonstrates your company’s determination to abide by compliance laws. Written documentation enables compliance officers to enforce the mandate and ensure the organization “practices what it preaches.”

You can simplify the documentation process by using entity management systems with built-in compliance modules. A built-in compliance framework monitors your organizational charts, calendars, workflows, and other templates for any errors, statutory non-compliance, and date-based compliance tasks that may be lacking. These automated workflows help your organization follow the jurisdictional letter of the law so that you always remain in compliance.

  1. Designated compliance officers

Org. charts provide oversight into the various executives and directors responsible for managing the legal entity. Among the featured positions on your organizational charts should be a Chief Compliance Officer, whose purpose is to enforce the documented compliance policies and procedures.

A Chief Compliance Officer must have the authority to maintain direct communication with all executive officers and members of the Board of Directors. While it’s not mandated, the person selected for this position should have previous legal experience. This will help the officer enforce the protocols and protect the organization from inadvertent non-compliance.

  1. Effective training procedures

Training is absolutely essential to an effective compliance program. Once the policies have been created, the Chief Compliance Officer and his/her team must enact training protocols to properly educate employees, business partners, executives, directors, and shareholders on the fundamentals of the corporate compliance program.

The purpose of compliance training is to ensure everyone associated with the entity fully understands the rules of corporate compliance. Once the training is complete, updates should be made to minute book records notarizing the completion of the training programs. If outside regulators ever investigate the company, these records will show that the entity has crafted effective corporate compliance programs.

  1. Whistleblower reporting programs

If there are incidents of behaviour that are not in compliance with corporate policies, there needs to be a reporting mechanism in place. Sometimes, individuals who witness those examples of non-compliance actions fear the ramifications of speaking up.

Part of an effective compliance program is giving those witnesses the option of anonymously reporting the facts. This will help increase accountability and allow organizations to catch non-compliance behaviours before they cost the company significant penalties. People will feel more comfortable reporting the truth to compliance officers, allowing those officers to nip the problems in the bud before they spiral out of control.

  1. Monitoring and auditing

The Chief Compliance Officer’s roles and responsibilities include monitoring and auditing the corporate compliance program. These reviews of the program should be done periodically, and if any issues are identified, those problems should be immediately addressed and fixed.

An entity management platform with a built-in compliance module can assist with the monitoring and auditing process of your compliance program. Use the compliance module to review the documented policies and ensure no errors or statutory non-compliance tasks are missing from the corporate program.

  1.  Enforcement of compliance policies

The Chief Compliance Officer is also responsible for enforcing the compliance program. This means subjecting every member of the organization, including the CEO and the Board of Directors, to the same standards and requirements as interns or contract workers.

Compliance is a ubiquitous requirement that all levels of the organization must abide by to remain compliant with the laws of the land. Enforcement of the compliance program ensures that no special treatment is awarded and no bending of the rules is prohibited.

  1. Investigating and responding to non-compliance

Finally, investigations and responses to non-compliance behaviours are the only way to ensure the program is enforced across the organization. Compliance officers must step in and lead the investigations when the organization is at risk of non-compliance.

A compliance program that has no teeth is an ineffective set of guidelines. Properly responding to and investigating incidents of non-compliance may result in short-term pain, but it will effectively prevent the organization from becoming subjugated to stiff penalties from the law.