Compliance Roundtable - Delhi, June 2024
TeamLease RegTech hosted a cohort of senior compliance executives at NCAER Delhi for a roundtable on India’s compliance landscape and the role of technology in its digital transformation. The discussion revolved around the complexities faced by corporations in their compliance functions, the changing expectations of the board of directors, and how technology is transforming compliance and aiding the creation of a culture of compliance. The discussants zeroed in on how technology can help simplify and digitise compliance workflows, introducing transparency, accountability, and ease of compliance within the organisation.
The participants, hailing from diverse sectors, including healthcare, manufacturing, finance, and non-banking financial companies (NBFCs), shared their insights on the compliance challenges and how the fear of non-compliance affects their compliance functions. The concerns centred around the fluid nature of the compliance ecosystem, wherein a rapid pace of change can create an environment of uncertainty. The discussants also emphasised the role of human error as a risk factor in compliance processes. For instance, even minor mistakes can have severe consequences in high-stakes environments like hospitals. Even a small 50-bed hospital needs to comply with over 600 unique compliances. As such, there is a need for rigorous training and stringent protocols to mitigate this risk. Continuous education through new courses is vital for healthcare institutions as the dynamic nature of medical sciences requires ongoing learning for medical professionals. One of the panellists remarked how companies are not compliance-friendly and lack knowledge of the law. Consequently, their approach lacks impetus.
Furthermore, the complexity of the system is such that no single individual can know everything related to compliance. Consequently, robust documentation and collaboration are essential for compliance and operational efficiency. Participants highlighted the challenges of maintaining accurate and up-to-date records, which are crucial for audits and regulatory compliance. A senior compliance professional pointed out how RBI has become proactive in its implementation of the regulatory framework in the financial sector. As such, NBFCs need to be extra careful in their operations and leverage technology to stay on the right side of the law
The discussants deliberated on the key compliance challenges that employers face. These include the element of criminality associated with failure to comply, the complexity of the regulatory framework, a dynamic and fluid compliance environment, highly manual processes, and higher levels of regulatory scrutiny. The Indian regulatory universe is made up of 1,536 acts, which give rise to 69,233 compliances and 6,613 filings. Over 55% (843) of these laws carry imprisonment clauses. 2 out of 5 compliances (26,134) prescribe jail terms for contraventions, and 3 out of 5 can land you in jail for over a year. State-level legislation is responsible for 80% of these clauses. A major chunk of these originate from labour laws, which account for 68% of imprisonment clauses.
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It was unanimously agreed that managing compliance events, such as audits or inspections, requires meticulous planning and execution. It is better to have proactive compliance strategies than relying on reactive measures to ensure adherence. The compliance professionals at the roundtable agreed that collaboration across various functions and processes is the need of the hour. Cross-functional support is critical in ensuring comprehensive risk management and regulatory compliance
The discussion then moved to the noticeable shift in the culture within NBFCs and financial institutions. There is now a more pronounced line of defence between the board and compliance teams, with CXOs playing an increasingly active role. This shift underscores the importance of tone from the top in compliance management processes. Participants talked about how managing teams that do not report directly to you presents unique challenges. It is difficult to ensure accountability and coordination among different teams. A significant portion of the discussion also centred on how enterprises can get stuck in the crossfire between central and state regulations. The multi-layered compliance ecosystem requires a harmonised approach to compliance.?
A host of suggestions and recommendations were considered that can simplify compliance processes and reduce the complexities around compliance functions. The introduction of a unified reporting mechanism can streamline compliance and risk management processes. Such a system will improve the ease of reporting and transparency, allowing all stakeholders access to necessary information. Once operationalised, the labour codes will reduce compliance complexities and streamline record-keeping and filing requirements across the economy. The roundtable also deliberated on reducing the number of sectoral regulators to simplify compliance requirements and reduce the burden on organisations. Such a step will streamline the regulatory framework with there being a single source of regulations. The significance of a Unique Enterprise Number (UEN) was also discussed. The 2023 union budget had denoted PAN to be a single business identifier for businesses for all digital systems of all specified departments of the government. This universal identifier will be critical in developing a risk-based assessment process. This risk-score can then be used to determine the nature and frequency of inspections and audits. With time, this will create a compliance history for enterprises.
Addressing the challenges discussed in the roundtable requires a combination of proactive strategies, cross-functional collaboration, and regulatory simplification. Compliance professionals brought to the forefront the multifaceted nature of compliance with challenges that affect compliance processes. The discussion concluded with a call for moving towards proactive compliance.