An Overview of Corporate Governance, Financial Regulation and Compliance in the Financial Services Sector

An Overview of Corporate Governance, Financial Regulation and Compliance in the Financial Services Sector

Running and managing a financial institution or any organization involved in the provision of financial services is not the simplest of tasks these days.

As a result of a global push for increased financial transparency and corporate accountability, a greater number of financial regulations—GDPR, the 4th and 5th Anti-Money Laundering (AML) Directives, and MiFID II, among others—have been brought into line, adding burdensome compliance costs and obligations for companies operating in the financial services sector.

With this in mind, what are some of the key considerations financial institutions and likeminded enterprises should take into account in the running of their business? More specifically, what is the role of strong corporate governance and compliance with current financial regulations in the success of a business in the financial services sector? In this blog post, we will tackle some of these questions as a preparation for our Certificate in Governance, Financial Regulation and Compliance, which will kick off on November 19th, 2019.

What is Corporate Governance for Financial Institutions?

In a nutshell, corporate governance can be defined as the set of rules, practices and guidelines used by a company to operate, control and manage its business. This entire behavioral, organizational and regulatory structure helps a company reach a healthy balance between all of its major stakeholders—from civil society to its employees and all the way up to the board of directors. Most importantly, as explained by Investopedia, “good corporate governance creates a transparent set of rules and controls in which shareholders, directors, and officers have aligned incentives.”

What is the Role of Compliance in the Financial Services Sector?

Today, as demands for greater transparency grow by the minute, compliance is of utmost importance for any business in the financial services sector. The combination of rapid regulatory change as a result of the catastrophic 2008 economic crisis, the burgeoning cryptocurrency and fintech market, and the magnifying importance of cyber security has transformed the role of compliance in this industry, making it a whole lot more complex, costly and demanding. Despite these challenges, there is no imaginable reason for any financial institution or likeminded organization to avoid or ignore its compliance obligations.

For the financial services sector, compliance serves the fundamental purpose of allowing a firm to operate within the purview of the law, avoid unnecessary penalties from the regulatory bodies, cater to their clients’ needs in an ethical and efficient manner, protect their employees, and run the business in the most transparent and effective way possible. In a 2019 interview with Financier Worldwide, Ronald Machen, a Partner with American international law firm William Hale, highlights the overall importance of a company’s compliance department.

Machen said, “A well-functioning compliance department helps the company avoid legal pitfalls that can cost it hundreds of millions in fines and other legal costs,” while “[implementing] its business strategy across myriad countries.”

“While there are sometimes tensions between business and compliance personnel, smart companies realise that the compliance function protects not only their bottom line, but also their employees as regulators… continue to focus on individual bad actors within companies,” Machen concluded.

How to Best Deal with Financial Regulators

A big component of the ongoing compliance game involves companies in the financial services sector learning how to effectively deal with regulatory bodies. To a great extent, trust between the financial services sector and the regulatory world was broken following the 2008 financial crisis and it is now in the process of being rebuilt. In another Financier Worldwide article, Tomasz Braun, a Partner with global law firm Dentons, remarked that today “regulators are holding up the financial sector to greater scrutiny than ever before, while FIs are struggling to keep up with the regulatory burden and the pace of change.”

With this in mind, Braun suggested that, besides dealing with “market uncertainty” and a “dependence on political dynamics,” firms in this sector “need to be able to prove that they have reviewed their processes and introduced appropriate compliance measures.”

Gregory Brandman, a Partner with multinational law firm Eversheds Sutherland, believes “there is still much work to be done to rebuild trust and confidence – on both sides.”

Brandman added: “From the FIs’ perspective, this can be best achieved by a continuing process of demonstrable improvement in their culture and governance, including holding senior managers to account for conduct failings. This is gradually happening in practice, but cultural change, in particular, takes years rather than months or weeks to achieve.”

What are the Key Compliance Risks in the Financial Services Sector?

Several recent surveys targeting executives and compliance officers in the financial services sector highlight the many risks they expect to face in 2019. Separate studies by consulting firm Protiviti and North Carolina State University’s Enterprise Risk Management Initiative, Accenture and Thomson Reuters’ Regulatory Intelligence, to name a few, show that issues pertaining to the use of data and personal information, the cost of compliance and embracing technology are this year’s focal point.

For the sake of brevity, here’s a laundry list summarizing ten of the main compliance risks found in these surveys:

  1. A lack of preparedness in response to cyber threats
  2. Handling conflicts of interest and the disclosure of information in such cases
  3. Dedicating too few resources to data protection and related privacy issues
  4. Tackling the rising costs associated with compliance
  5. Retaining employees and maintaining a mature and strong compliance culture within the organization
  6. An inability to keep up with rapidly changing technological developments and innovation and remain competitive in the face of companies that are digitally savvy
  7. An underdeveloped setup for the efficient and beneficial utilization of Big Data
  8. Quickly detecting insider trading and market manipulation
  9. Keeping up with all the regulatory changes and updates being implemented on a monthly basis, and
  10. Managing issues pertaining to anti-money laundering, Know-Your-Customer (KYC), due diligence and beneficial ownership registers


Are there any other risks you would like to pinpoint? Get in touch and let us know!


On November 19th, EIMF will be offering a Certificate in Governance, Financial Regulation and Compliance. For additional details on this course and many others, please click here. EIMF’s expert advisers are also at your disposal and can be reached at +357-22274470 or [email protected].