3/24/23, 3:36 AM Compliance Program: Definition, Purpose, and How to Create One

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Compliance Program: Definition,

Purpose, and How to Create One
By WILL KENTON Updated July 09, 2022
Reviewed by ANDY SMITH

Fact checked by MARCUS REEVES

What Is a Compliance Program?

A compliance program is a company's set of internal policies and procedures
put into place in order to comply with laws, rules, and regulations or to uphold
the business's reputation. A compliance team examines the rules set forth by
government bodies, creates a compliance program, implements it throughout
the company, and enforces adherence to the program.

KEY TAKEAWAYS
Compliance programs outline a set of guidelines and best practices
that ensure a company's employees are following all relevant laws and
regulations.
Compliance programs help corporations protect their brand from
scandal and lawsuits.
An effective compliance program should have clear policies, a healthy
path of communication between employees and those who oversee
the program, and not shy away from taking corrective action when the
compliance program is breached.

Understanding Compliance Programs

The main financial regulators in the United States are the Federal Reserve
Board, Securities and Exchange Commission (SEC), and the Financial Industry

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3/24/23, 3:36 AM Compliance Program: Definition, Purpose, and How to Create One

Regulatory Authority (FINRA). These and others have established requirements

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that must be followed, where applicable and in varying degrees, by banks,
broker-dealers, asset managers, and other financial institutions.

Compliance programs have grown in importance in the financial industry since

the shock of the financial crisis, but vehement complaints of bankers have
found receptive ears of Republicans in the federal government. There have
been concerted efforts to roll back regulations designed to keep some
participants in the financial sector from overplaying their self-interested urges,
but the push and pull of politics in D.C. make it unclear what changes, if any,
will ultimately result.

Publicly traded companies are supposed to have robust compliance programs

to follow requirements set forth by the SEC. In particular, filing requirements
and deadlines must be strictly adhered to. Compliance programs are also
important, though less formal, at companies big and small, public or non-
public.

Where requirements of a regulatory authority do not apply, a compliance

program of a firm addresses the conduct of employees to abide by internal
policies (e.g., spending corporate funds or treatment of women) and, more
importantly, to maintain the firm's reputation among its customers, suppliers,
employees, and even the community where the business is located.
Compliance departments have risen in stature due to their role in keeping their
companies out of hot water with regulators, customers, shareholders, and the
media and general public.

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3/24/23, 3:36 AM Compliance Program: Definition, Purpose, and How to Create One

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How to Create a Compliance Program

While there can be different types of compliance programs—those for closely
following financial regulations or for ensuring a workplace is free of
discrimination and sexual harassment—every compliance program should have
a few key elements.

After the passage of the Affordable Care Act, the government outlined seven
components of a strong compliance program for healthcare providers. The
presentation identified the following elements.

Written Policies, Procedures and Standards of Conduct

The first step to implementing a compliance program is making sure your
compliance program has clearly defined policies and expectations. Allowing the
written program to be readily available for all employees, regularly updating
and reviewing the policies, and ensuring new hires review the program within
90 days of onboarding are essential to a compliance program's success.

Compliance Program Oversight

Once the expectations of the program are clearly defined, you'll need to assign
a compliance officer or compliance committee to oversee the program. This
employee or group of employees should have a history and deep knowledge of
ethical behavior, and, depending on how the company is structured, should
report directly to the CEO.

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3/24/23, 3:36 AM Compliance Program: Definition, Purpose, and How to Create One

Training and Education

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A crucial aspect of implementing a compliance program in the workplace is
spending the time and money to ensure all employees are familiar and
appropriately trained to the program's new set of standards. This should
include new hires as well as frequent check-ins with all current employees.

Hosting annual or quarterly company-wide meetings that address any concerns

or updates regarding the compliance program as well as ensuring that all new
employees complete the compliance training within their first few months of
employment will help maintain a successful compliance program.

Opening the Lines of Communication

Another important aspect of running a successful compliance program is
making sure employees at every level feel they have an open avenue to express
their questions or concerns about the compliance program. Compliance
programs should allow employees to report violations and address ethical
issues via an anonymous platform. Furthermore, compliance officers should
make themselves available and approachable to employees who have specific
questions regarding the compliance program.

Establishing a solid path of communication between those overseeing the

compliance program and the employees it covers is essential to ensuring
breaches 1) get reported and can be prevented in the future.

Auditing and Monitoring

A system of auditing and monitoring should be implemented in order to
measure the effectiveness of the compliance program, ensure adherence to
external regulations, and identify compliance risks. Compliance programs
should be reviewed regularly as part of normal operations, however, they
should also be subject to a formal external audit. An audit should be performed
at least on an annual basis. The auditor should provide a written report of their
findings.

Consistent Discipline

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One element of an effective compliance program is that it is actually enforced.

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The compliance program should include clear, written policies that apply
appropriate disciplinary actions to those who fail to comply with the program's
expectations and policies. These disciplinary actions should apply when the
following situations arise: non-compliance, failure to detect non-compliance
when due diligence should have provided obvious clues, and failure to report
instances of non-compliance.

As you can see, enforcing the necessary disciplinary actions will be made easier
if the above steps, particularly having clearly defined expectations, and an
open-door policy, are adhered to.

Corrective Action
Finally, when all the above steps have been followed, and a significant
compliance risk or vulnerability is discovered either through an audit,
compliance breach, or internal review, the compliance committee should take
timely, decisive action that will reduce the risk of non-compliance.
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3/24/23, 3:36 AM Compliance Program: Definition, Purpose, and How to Create One

Employee Plans Compliance Resolution System (EPCRS):

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The Employee Plans Compliance Resolution System (EPCRS) is an IRS portal that allows
plan sponsors and administrators to correct errors in their retirement plan. more

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Business ethics is the implementation of policies and procedures regarding topics such as
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A compliance officer ensures a company complies with its outside regulatory
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Collective Bargaining
Collective bargaining is the process of negotiating terms of employment between an
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