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Pwc State of Compliance Study 2016 Laying a Strategic Foundation for Strong Compliance Risk Management

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Pwc State of Compliance Study 2016 Laying a Strategic Foundation for Strong Compliance Risk Management pwc.com/us/stateofcompliance PwC State of Compliance Study 2016 Laying a strategic foundation for strong compliance risk management PwC State of Compliance Study 2016 PwC State of Compliance Study 2016 Welcome Table of contents Welcome to our State of Compliance report for 2016—2016 marks our 6th annual Introduction 2 Delve into the study which is designed to give corporate compliance officers benchmarking data full analysis of to help them understand common industry practices today and plan for more the PwC State of effective, more efficient compliance operations in the future. The study aims to Compliance Study give compliance leaders a view into organizations’ tone at the top, process to assess Tone at the top 4 2016 at pwc.com/us/ risk and compliance and ethics oversight structure and scope. These compliance stateofcompliance program elements, representing the business strategy elements of compliance and ethics, are among the most frequently debated topics by compliance practitioners. Risk assessment 8 We extend our sincere thanks to the more than 800 executives globally who participated in this year’s survey. Respondents represented a great diversity of company sizes, industries and responsibilities. This year, just over a third of respondents came from companies with anticipated revenues of more than $5 Oversight and responsibility 13 billion. Banking and Capital Markets organizations showed a particular interest (15% of total respondents), just as in 2015. A third of our respondents are either a Chief Compliance Officer (CCO), Chief Ethics and Compliance Officer (CECO), Chief Legal Officer or General Counsel and a fourth described themselves as a Chief Audit A look at those with the strongest compliance commitment 17 Executive or equivalent. Additional respondents are senior legal counsel or directors or managers of compliance, ethics, audit, or risk. We hope you find the information in this PwC State of Compliance Study 2016 report insightful and valuable in helping you improve the effectiveness of your Conclusion 18 organization’s corporate compliance function. Sincerely, Andrea Falcione Seth Cohen Managing Director, PwC Director, PwC [email protected] [email protected] +1 617 530 5011 +1 646 471 0105 Laying a strategic foundation for strong compliance risk management 3 PwC State of Compliance Study 2016 PwC State of Compliance Study 2016 Introduction State of Compliance Study 2016 at a glance In our 6th annual State of Compliance programmatic performance essential business processes and to assess the Study, we took a slightly different to determining the effectiveness of effectiveness of compliance efforts Embedding compliance into both strategy and everyday operations begins with effectively establishing the tone at approach than in prior years—this risk and compliance processes and against strategic objectives. By focusing the top, assessing compliance and ethics risks in efficient collaboration with other risk functions and building the time, focusing on the elements identifying potential blind spots in our study more closely on these three governance and oversight structure that provides a high level of confidence over regulatory matters. represented in the business strategy oversight or management. strategic elements of an effective portion of PwC’s proprietary compliance and ethics program, we Tone at the top: Strategic We focused this year on business Risk assessment: Coordinated compliance and ethics framework, hope to provide CECOs and other involvement approach depicted in Figure 1 and refreshed strategy because the connection of compliance leaders with meaningful since first introduced in our 2015 study. compliance to business strategy— information against which they may Senior executives support compliance and ethics Compliance and ethics is aligning activities with including tone at the top, risk benchmark and further develop programs, but are less visibly engaged in leading other assurance functions, but more coordination Within the framework, business assessment, and oversight and the strategic cornerstones of their their companies’ programs is possible strategy refers to the approach and responsibility—lays the strategic compliance and ethics programs. In have senior leadership that is committed to tenor the organization takes to align foundation for both a culture 98% 54% conduct compliance and ethics-specific risk subsequent studies, we will look more compliance and ethics assessment activities beyond ERM efforts risk and compliance with its business of compliance and ethics, and closely at the business management indicate senior leadership provides only ad hoc strategy and to manage associated management programs that help and business performance elements of 55% In their risk assessment, compliance and ethics program oversight or delegates most compliance and risks. Business management refers to ensure the organization conforms to the framework, all of which are needed teams may be missing valuable “bottom up” ethics oversight activities how risk and compliance management all necessary regulatory requirements to drive effective compliance and ethics information… is owned by the business and and ethical standards. Without strong programs. integrated into the business processes alignment of compliance management Deficiencies in measurement may contribute to 21% use employee surveys to gather information for and culture. Business performance is to business strategy, it is difficult to lagging leadership engagement their risk assessments the measurement of operational and efficiently integrate compliance into 48% report their organization assesses its “tone at …and, in execution, falling short on getting the top” business units to own compliance risk Figure 1: PwC’s compliance and ethics framework To align compliance to business strategy, 67% have a process to identify owners of specific compliance officers will need to be more actively compliance and ethics-related risks involved in strategic discussions Legal or compliance “owns” 11 of 17 compliance Business strategy Tone at 36% are “inherently integrated” or “play a key role” and ethics-related risks most frequently the top in strategic planning Risk assessment Oversight & responsibility Policies & procedures Oversight and responsibility: Focused and efficient Business management Board-level oversight committees demonstrate a rising focus on compliance and ethics Training Communication 20% have Boards of Directors that formed a separate, stand-alone compliance/ethics committee Monitoring, analysis, & response Dedicated business unit compliance officers are keenly focused on monitoring activities have dedicated business unit or business area compliance officers Reporting 72% Business oversight 89% select compliance monitoring as a primary area of responsibility Enforcement Resource & Auditing & discipline performance In-house compliance committees are becoming more streamlined management In-house committees do 11 of 14 activities less frequently than in 2015 2 PwC Laying a strategic foundation for strong compliance risk management 3 PwC State of Compliance Study 2016 PwC State of Compliance Study 2016 Tone at the top An organization has established more accountable for participation, Figure 2: Sample compliance and ethics executive scorecard effective tone at the top when senior which is motivating some innovative “Our program goal is to leadership demonstrates personal organizations to incorporate executive manage global risks that We have adapted the following compliance and ethics executive scorecard from a similar version developed by one of our more and organizational commitment to metrics into their compliance and ethics innovative clients. It is a great example of how one organization holds executive leadership accountable for its critically important compliance and the compliance and scorecards (Figure 2). Such scorecards impede meeting strategic role in the company’s compliance and ethics program. ethics program, and this commitment enable both senior leadership and goals while not adding To use such a scorecard, a company might first require the executive to provide a self-rating, followed by a blind rating by the permeates all levels of management. compliance and ethics department unnecessary cost and compliance and ethics department—similar to many organizations’ general performance management processes. In the event that leadership to stay focused on the burden to the bottom line.” an executive is found to be deficient, the CECO might co-develop an action plan designed to increase the executive’s compliance Executive commitment. Senior elements that matter most to actively leadership proficiency. Should there be a lack of improvement on a year-over-year basis, the individual’s incentive compensation executives appear to be supporting driving a culture of compliant behavior 2016 study respondent may be affected, and he or she may be otherwise held to task by the CEO or the Board. their compliance and ethics programs, and ethical decision making. They but they are less visible as actively enable senior leadership to be more Compliance and Associated metrics Executive’s self Compliance and frequent reinforcement. However, our engaged leaders of their companies’ attuned to what is happening with the ethics program rating ethics department’s study revealed that only 26% of senior element(s) rating programs. An overwhelming majority compliance and ethics program and, as executives speak of compliance and Tone at the top; 1) Incorporates
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