The Consequences of the SCA Mandating Companies to Establish Compliance as an Independent Function

The Securities and Commodities Authority (SCA) mandated earlier this year that companies must establish compliance as an independent function. This decision has significant implications for businesses operating within the region, ensuring that compliance is not merely a subsidiary responsibility but a core component of corporate structure. Now the dust has settled, we explore the consequences of this.

Boosting Corporate Governance

The main aim of this new rule is to strengthen corporate governance. With compliance as a standalone function, companies are more likely to follow laws, regulations, and ethical standards. This setup reduces the chances of corporate misconduct and increases transparency, which in turn builds investor trust. However, to achieve this, companies will need to invest in dedicated resources and hire skilled compliance professionals.

Better Risk Management

When compliance is part of another department, like legal or finance, conflicts of interest can arise, and compliance issues might not get the attention they deserve. Making compliance independent allows companies to manage risks more effectively. This separation ensures that risks are identified, assessed, and mitigated without any bias from other business interests, protecting the company's reputation and financial stability.

Operational Efficiency

While setting up an independent compliance function requires initial effort and resources, it can lead to smoother operations in the long run. A dedicated compliance team can streamline processes and make sure all regulatory requirements are met efficiently. This specialization frees up other departments to focus on their core tasks, ultimately boosting overall productivity.

Building a Culture of Integrity

This new rule can help create a culture of integrity within companies. When compliance is treated as a vital, separate function, it shows all employees that following rules and ethical standards is crucial. This can improve employee morale and create a more cohesive work environment. Additionally, a strong culture of integrity can attract top talent who value transparency and ethical business practices.

Challenges and Considerations

While there are clear benefits, this new rule also brings several challenges:

  1. Restructuring: Companies may need to undergo significant restructuring to establish an independent compliance function, which can be complex and time-consuming.

  2. Hiring Experts: Finding and retaining qualified compliance professionals can be difficult, given the specialized skills and knowledge required for these roles. This is particularly true in more specialized industries such as financial services.

  3. Funding and Support: The compliance function needs adequate funding and support to be effective. Companies must ensure they allocate sufficient resources to this new setup.

  4. Initial Costs: There will be initial costs associated with setting up this independent function, from hiring new staff to possibly overhauling existing systems.

  5. Integration with Existing Workflows: Ensuring that the new compliance function integrates smoothly with existing company processes can be challenging, requiring careful planning and execution.

Conclusion

The SCA's new rule for independent compliance functions is a major step towards better corporate governance, risk management, and operational efficiency in the UAE. Despite the challenges, the benefits of creating a culture of integrity and ensuring robust compliance practices are significant. As companies adjust to this new requirement, they will be better equipped to handle the complexities of the business environment, protect their reputations, and contribute to the UAE's economic growth.

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