Jersey's thoughts on why compliance monitoring helps manage compliance risk.

Compliance monitoring:-

1. Is a crucial aspect of managing compliance risk?
2. Is a proactive approach to managing compliance risk, ensuring that businesses in Jersey operate within the legal and regulatory framework, thereby protecting their reputation and financial stability.
3. Is a vital tool for businesses to stay ahead of potential compliance issues and mitigate risks effectively.

Compliance Risk is the risk of harm a JFSC-regulated firm [JRF] may suffer because of:-

4. Legal or regulatory sanctions,
5. Material financial loss, or
6. Reputational damage

The above harm will come from a JRF's failure to comply with the application to its regulated activities, as shown in

7. Laws,
8. Regulations,
9. Rules,
10. Related self-regulatory organisation standards and
11. Codes of conduct

Here are the how’s and whys:

12. Assessment of Adherence:

• Compliance monitoring assesses a JRF’s adherence to applicable legislative and regulatory requirements and corresponding controls. It helps ensure that businesses are following the necessary laws and regulations.

13. Integral Part of Risk Management:

• Compliance monitoring should be integral to a JRF’s risk management framework, specifically concerning Compliance Risk. It helps identify potential risks and implement measures to mitigate them.

14. Demonstration of Compliance:

• It helps JRFs demonstrate compliance with:-

i. The JFSC business [Gov/Cob/prudential] Codes of Practice, in particular Principle 3

ii. Article 11 (11) of the Money Laundering (Jersey) Order 2008, and

iii. Relevant sections of the JFSC AML/CTF/CPF Handbook

15. Risk-Based Approach:-

• Because Compliance Functions have finite resources subject to competing demands, it is often necessary to adopt a risk-based approach to Compliance Monitoring and focus on the areas with the highest perceived risk of non-compliance.

16. Facilitates Senior Management’s Risk Assessment:-

• Effective compliance monitoring also facilitates senior management’s risk assessment of their organisation’s compliance with its statutory and regulatory obligations.

17. Mitigate Legal and Financial Risks:-

• Compliance monitoring can help businesses mitigate legal and financial risks, safeguard assets and reputation, demonstrate accountability, optimise efficiency, and gain a competitive edge.

COMPLIANCE MONITORING

18. Compliance monitoring

• Can occur throughout the business and need not be solely undertaken by the Compliance Function.
• Completed by the Compliance Function should provide the Board with more robust assurance about its management of Compliance Risk.
• Plans [CMP] should be reviewed regularly and periodically approved by the Board to ensure that changes to the JRF’s Compliance Risk are appropriately reflected.

18. The JFSC

• Does not expect each JRF to undertake similar compliance monitoring because compliance monitoring should be risk-based and depend on the business's nature, size, and complexity.
• Expects senior management and the board of registered persons to understand and demonstrate the importance of compliance monitoring, for the approach to compliance monitoring to be documented, and for corresponding records to be appropriately maintained.

APPROACH TO COMPLIANCE MONITORING

20. Because Compliance Functions have finite resources subject to competing demands, it is often necessary to adopt a risk-based approach to Compliance Monitoring and focus on the areas with the highest perceived risk of non-compliance.
21. The determination of a risk-based CMP should involve a cyclical feedback process consisting of the following steps:-

• Identifying relevant legislative and regulatory requirements.
• Identifying relevant controls.
• Conducting a risk assessment.
• Producing and approving a CMP.
• Undertaking testing.
• Reporting; and
• Overseeing remedial action.

CONCLUSION

22. The JFSC does not expect each JRF to undertake similar compliance monitoring.
23. Compliance Monitoring should be risk-based and depend on the business's nature, size, and complexity.
24. However, the JFSC does expect senior management and the board of a JRF to understand and demonstrate the importance of Compliance Monitoring and
25. The approach to compliance monitoring needs to be documented, and the corresponding records must be appropriately maintained.

NOTE

• For this note, the term JFSC regulated firm is used to capture any firm that is subject to the JFSC rules [e.g. codes] and subsequent supervision and oversight

SOURCE

• https://www.jerseyfsc.org/industry/guidance-and-policy/compliance-monitoring/