Financial compliance refers to making sure companies in the finance sector follow specific federal and state laws. The enforcement of these statutory regulations ensures the market operates efficiently and transparently. This boosts the confidence of small investors who invest their life savings in the companies’ securities. They know their money is safe and is earning adequate returns.
Government regulators monitor the companies’ business operations. They ascertain whether the companies are following the proper accounting and financial reporting standards. Otherwise, they can take necessary legal action against the corporate enterprises for their negligence. This helps to prevent money laundering and evasion of taxes.
Scott Tominaga– How does financial compliance work in companies?
Scott Tominaga is a renowned financial specialist from America with 25 years of experience in alternative investment. His area of expertise is in back-office operations, accounting, administrative functions, and financial compliance. He has held many important positions throughout his illustrious career in the financial service sector. This even includes the role of a FINRA regulator for more than 20 years. He holds a degree in Business Finance from Arizona State University.
He says finance companies generally appoint one of their employees to act as a compliance officer. He is generally a senior accountant or in-house lawyer with knowledge of statutory laws affecting their business operations. His primary responsibilities are to ensure:
- The top managerial officials are aware of accounting and financial reporting standards affecting their businesses,
- Make the companies’ employees follow these regulations at the time of performing their duties,
- Identify the legal risks the companies face for not complying with these statutory regulations,
- Inform the top management of these risks and devise proper internal control measures for their prevention,
- Oversee and report to the management on the effectiveness of the internal control measures, and
- Resolve difficulties arising from the companies’ negligence in complying with proper accounting and financial reporting standards.
Types of compliance risks companies need to avert
A compliance officer has to ensure the companies and their employees interact honestly with various stakeholders. Only then can companies maintain cordial relations with investors, customers, suppliers, and the government. He has to take the necessary steps to identify and avert the following compliance risks:
- Conflict of different interests among stakeholders affecting investor relations,
- Suspicions of money laundering in the manner of conducting certain commercial transactions,
- Discrepancies in the financial performance data in the books of the companies’ accounts,
- Inadequate disclosure of online customer reviews and marketing policies on the companies’ website, and
- Adoption of the best corporate governance practices which help to avoid troublesome situations,
Scott Tominaga concludes by saying companies should comply with statutory accounting and reporting standards regularly. It helps them to avoid all forms of legal troubles with the government. As a result, they do not have to incur financial expenses due to fines and penalties. Even their financial records disclose accurate data on their existing market performance. This helps the managers to take decisions on strengthening their competitive edge in the market with confidence!