Governance & regulatory compliance

In the face of an increasingly complex and uncertain commercial, regulatory and geopolitical environment, financial services organisations are looking to develop a more proactive, systematic and integrated approach to governance, compliance and risk management.

On the one hand, new levels of accountability, coming not just from new laws and regulations but also from a broader stakeholder group, have elevated the concerns at board level of ensuring that effective, robust and reliable governance, compliance and risk management processes are in place.  Underlying this development, we are witnessing a paradigm shift, which leads to governance, compliance and risk management being seen as real drivers of business value

Effective governance practices start at the top, ensuring Board focus on the issues that really matter and helping Boards to find the right level of involvement and the right approach to effectively discharge their board governance responsibilities and provide stakeholders with an appropriate degree of transparency.
But especially for financial groups, which often adopt multidimensional management structures, good governance practices should not be limited to the top board level only.  Subsidiary boards and their committees have an equally important role to play in driving accountability through the organisation, in monitoring performance, and in orienting the strategy of the activities within their remit within the broader framework of the group’s strategy.

Effective enterprise-wide risk management can help to underpin sound governance and related compliance requirements by providing a comprehensive framework of internal controls and reporting procedures. The enterprise-wide approach focuses both on familiar financial risks and harder-to-measure strategic, operational and reputational risks. The results are enhanced stakeholder confidence and sustainable value creation. A global CEO survey carried out by PwC in 2003 revealed that among companies where enterprise-wide risk management is a priority, with most including both quantifiable and hard-to-measure risks in their programmes, more than two-thirds believed that it had improved their ability to take appropriate risks to help create value.

Markets in Financial Instruments Directive (MiFID)

MiFID, which came into force in November 2007, is the cornerstone of the EU’s strategy to create pan-European capital markets. In replacing the Investment Services Directive, MiFID does not only introduce changes to the existing regulatory environment across the EU, but also encompass products and asset classes that have not been subject to regulation before including derivatives.

MiFID’s 73 articles cover a wide range of systems, information and client relationship provisions including best execution, investment advice, client suitability, information about financial instruments and safeguards against conflicts of interest. In practice, compliance to requires a thorough review and upgrade of systems, training, record keeping, marketing materials and agreements with customers.

On a strategic level, MiFID enables investment businesses to operate across different European jurisdictions while being governed by a single home regulator. The directive also makes it easier and more cost-effective for larger organisations or groups of companies to conduct proprietary trades outside exchanges. For investors, MiFID offers greater transparency, more choice of markets, consistent protection around Europe and potentially lower margins.

How PwC is assisting financial services organisations

PwC has a global network of specialists that can provide solutions to all matters related to risk management including policy and strategy, risk-based capital management, benchmarking, systems selection and development, enterprise-wide risk management and integrated governance, compliance and risk management solutions.