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Legal and Compliance – Two Sides of the Same Coin

by InnReg on May 20, 2022

Legal and Compliance functions can at first glance seem to be closely intertwined for an outside observer. Indeed, both broadly deal with regulations and the impact of breaking them. However, the similarity falls short of the specific roles of legal and compliance and their related tasks. In fact, these roles work best when entrusted to separate experts. While combining these roles might seem appealing, especially for early-stage startups, there are conceptual differences to consider beforehand.

INNREG_legal-and-compliance-fintech

Differences in Roles

A GC (or General Counsel) acts as an advocate for the company, with a primary duty to champion the company’s position with respect to a wide variety of areas, including intellectual property, labor and employment law, liability, and general regulatory obligations in a given domain. In addition, a GC must understand legal risks that impact the objectives and strategy of the business and then communicate with top management.

On the other hand, CCOs play a direct part in the day-to-day operations of the business. From a regulatory compliance perspective, their primary role is to look for potential compliance pitfalls, both before and when they occur and devise and design the best ways to grow the business without violating regulations. Additionally, a CCO is tasked with monitoring that internal policies and procedures are respected and enforced company-wide.


Synergy in Executive Roles

Legal and compliance are more synergetic than synonymous. Mergers and acquisitions are a good example. GCs and CCOs may work together in supporting the founder or CEO during a transaction, but the CCO’s role continues long after the deal is done. It includes post-merger activities, such as managing internal policies, regulatory compliance standards, and operational risks of the new, presumably larger, entity.


Synergy in Team Output

A better approach is to view legal and compliance as two sides of the same coin. Even with their distinct goals and intra-organizational operations, they share a common mission to uphold laws and regulations as a whole. For instance, whereas the compliance function can develop policies and procedures, the legal department is best equipped to provide feedback on their legality.

Separating the two functions also helps maintain essential checks and balances. This separation is especially important if a company operates within a highly regulated industry with a complex legal framework, such as finance or fintech. An independent legal review of compliance procedures ensures impartiality and objectivity, much like an independent auditor keeps a check on corporate finances. Having legal and compliance working together in this way helps ensure that corporate compliance goals are effectively achieved.


Effective Cooperation

So, while it may seem prudent to merge legal and compliance roles to contain immediate operational costs, there is a potential for greater operational efficiency if these are kept separate. Many companies that used to assign compliance tasks to their legal departments are now looking to separate them.

This approach suggests that such companies are taking regulatory risk more seriously and are ready to invest in separate streams to achieve the highest possible levels of regulatory compliance and conformity with the law by:

  1. Detecting compliance issues at earlier stages
  2. Assuring prompt corrective action
  3. Creating a culture of ethical behavior

For an effective compliance program, both lawyers and compliance professionals are needed. They must coordinate and communicate at every step. In this manner, the natural synergy of these two roles leads to a symbiosis of output in terms of assessing risks from different perspectives.

These synergies manifest themselves in various ways. While it is the in-house counsel that defines the framework of a company’s operations, it is the compliance officer that defines and develops controls, policies, and procedures to ensure that companies stay within this framework.

Additionally, both legal and compliance officers play key roles when it comes to internal investigations. The two must work closely in order to make sure that all legal risks are covered, and that reaction procedures are adequate and up-to-date. Their cooperation is vital for the development of investigation protocols and approaches. Finally, the CCO integrates legal analysis provided by the in-house counsel into designing adequate controls.


FinTechs Take Note

Legal and compliance mission goals are especially important in those instances when a company operates within a highly regulated industry under a very complex legal framework. This is precisely the case for FinTech companies. They should recognize that legal analysis and adherence to compliance principles are two sides of the same coin. Once this is understood, both legal and compliance perform better.

In these cases, it is up to legal and compliance functions to work in harmony and keep both management and employees within the law.

Here is a list of useful considerations for legal and compliance officers to follow:

  • Compile and maintain an overview of relevant regulatory frameworks for the company
  • Ensure risk prioritization of all pieces of regulation within these frameworks
  • Set up projects in a manner compliant with regulatory requirements based on a rigorous impact analysis
  • Analyze new regulations and set up information alerts to inform the company
  • Ensure that a legal analyst performs a review of all regulation
  • Report compliance matters to the management level
  • Jointly report on compliance levels within the company

Listen to the Experts

If your company is a Fintech, or if you’re considering implementing Fintech solutions within your existing business structure, consider reaching out for outside expertise and experience. Engaging specialized professionals such as InnReg to craft a custom compliance solution will not only save costs for your company but will actively put it ahead.

The road to success requires optimizing your regulatory structure, business, and operational models and then developing the optimal cost-benefit structure for fintech compliance. InnReg helps FinTechs like yours acquire the crucial advantage needed to streamline compliance operations, maximize profit, and minimize costs and risks.

Topics: Legal and Compliance



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