Compliance
The word compliance is derived from “to comply with” and has come to mean “conducting business in accordance with applicable law”.
The term now refers to the comprehensive obligations placed upon members of senior management of a company to take comprehensive organisational precautions and measures, in order to ensure that an entity and its employees conduct themselves within the law as well as to swiftly detect the occurrence of any breaches of the law and to enforce sanctions accordingly. Compliance does not only relate to obligatory rules and standards, but also addressing such rules and standards on a voluntary basis. Compliance in the banking and capital markets sector increasing extends beyond the scope of out-and-out “securities compliance” and has established itself as an important element of orderly corporate governance.
The Stock Exchange Act (BörseG – Börsegesetz) prescribes that credit institutions, issuer, insurance undertakings and Pensionskassen are obliged to instruct their employees as well as other persons working for then about the misuse of insider information being prohibited, as well as to draw up internal guidelines in the company and to monitor their being adhered to. Furthermore, suitable organisational measures are to be prescribed for the prevention of misuse of insider information. An more detailed description of the compliance function can be found in the Issuer Compliance Regulation (ECV – Emittenten-Compliance-Verordnung). It contains a clarification and further expansion of the obligations set out in the Stock Exchange Act for stock exchange-listed companies.
In the Securities Supervision Act 2007 (WAG 2007 – Wertpapieraufsichtsgesetz 2007) the establishment of the compliance function and the requirements for the compliance function for credit institutions, investment firms, investment services providers and insurance undertakings, which provide investment fund brokerage, as well as asset management companies and alternative investment fund managers (AIFMs), who also conduct activities relating to individual portfolio management and investment advice) are individually legally defined.
The Insurance Supervision Act 2016 (VAG 2016 – Versicherungsaufsichtsgesetz 2016) prescribes the establishment of a compliance function for insurance and reinsurance undertakings that are subject to the provisions of Solvency II. The compliance function has the following duties:
- advising the management board on compliance with the provisions applicable to contractual insurance activities
- assessment of the possible impact of any changes in the legal environment on the operations of the insurance or reinsurance undertaking
- identification and assessment of the risk of non-compliance with legal regulations (compliance risk).The provisions prescribe that business structure should be created that, implemented on the basis of internal compliance regulations, controls the transmission of information for example by creating areas of confidentiality and which should serve to prevent the misuse or passing on of insider information as well as potential conflicts of interest between the institutions, clients and employees.