9 JANUARY 2019 – HOLLAND & MARIE
Question – Which of the following fully addresses the expectations of the Monetary Authority of Singapore (“MAS”) /best practices with respect to ensuring the adequacy of the compliance function at a financial services firm?
- A) Nominating a receptionist with no compliance experience as your compliance officer.
- B) Hiring a junior compliance officer.
- C) Hiring a dedicated compliance team.
- D) Fully outsourcing your compliance function to Holland & Marie.
The answer is E. While each of B, C and D (with D being our favourite) may satisfy the MAS for most issues, regulated financial services firms are also expected to conduct a periodic internal audit of their compliance functions.
INTERNAL AUDIT OF COMPLIANCE IS MERELY “BEST PRACTICE” BUT NOT A STRICT REQUIREMENT, CORRECT?
Yes. However, we consider it an expectation of the MAS. If the MAS expects something, we advise you to do it.
We refer to the MAS’ Guidelines on Risk Management Practices – Internal Controls (the “Internal Control Guidelines”). The Internal Control Guidelines are not laws or regulations. Instead, they should be seen as recommended best practices.
Paragraph 2.6.1 of states: “An institution should have in place an adequately staffed, independent and permanent internal audit function responsible for assessing whether existing policies, processes and internal controls (including risk management, compliance [emphasis added] and corporate governance processes) are independent, effective, appropriate, and remain sufficient for the institution’s business.”
What happens when you comply with applicable law but choose not to adopt MAS recommended practices? The answer depends on the facts and circumstances of the specific case. If nothing else, you will likely increase regulatory scrutiny of your business, which we do not recommend.
WHAT IS AN INTERNAL AUDIT?
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