Outsourcing compliance can affect risk

Generally Accepted Compliance Practice Framework sets standards for outsourcing

FAIS, (Financial Advisory and Intermediary Services Act 2002), requires financial services providers (FSPs) to appoint a compliance officer to assist management in complying with the Act. It also allows for the appointment of an external provider of compliance services if this makes better economic sense.

“An organisation cannot outsource its regulatory obligations and responsibilities. However, a number of compliance tasks can be successfully outsourced to suitably qualified and experienced practitioners, providing certain principles, standards and guidelines are followed and the materiality of any outsourced functions are carefully considered,, ” says Julie Methven, CEO of the Compliance Institute of South Africa.

These are set out in the Generally Accepted Compliance Practice Framework (GACPF), launched by the Institute last month and endorsed by the Financial Services Board. The Framework provides a set of standards and norms that act as a benchmark for compliance best practice. It also provides a code of ethics and professional conduct for compliance officers that provides a standard of behaviour and conduct and is ultimately aimed at promoting confidence in the compliance profession.

As outsourcing the compliance function can affect an organisation’s regulatory and operational risk, Methven says the most important practice when outsourcing is to set up key risk indicators in advance and define performance measurements. “This can prove challenging as, sometimes, the organisation being outsourced to has more knowledge about FAIS compliance than the financial services provider.”

“Management needs to ensure that its own levels of knowledge and experience are sufficient to enable it to judge whether the outsourced compliance provider is operating to appropriate standards,” she says.

In conclusion, Methven says new levels of professionalism and tighter admission requirements for compliance officers envisaged by the Financial Services Board are a welcome development and will augment the Institute’s own professionalism drive of which the new GACPF is a tangible product.