Navigating regulatory risk
The role of regulatory liaison office
Over the last five years, as new laws, regulations, and other guidance were introduced, banking and securities firms recognized the need for more visible and strategic management of their complex regulatory relationships. As more and more questions continued to flow from regulatory agencies, it became clear that the current methods of regulatory response may not have been as efficient and proactive as possible. In response, some firms created a Regulatory Liaison (RL) position (sometimes referred to as Regulatory Affairs Officer, Head of Regulatory Relations, etc.), which combined a sound understanding of the organization’s business with an appreciation for the regulatory agencies’ supervisory processes.
Role of a RLO
What is the role of a RLO and its leadership?
The organization’s RL should act on behalf of executive management and the board of directors as a central point of contact with regulators. As such, he or she should consider serving as an effective and trusted liaison for regulatory risk management matters. Policies should clearly articulate the RLO’s process for engaging with the organization’s regulators, so that there is coordination with other executive leaders as situations warrant.
Structure and leader requirements
RLO structure and leader requirements
Typically, the RLO usually reports to either the Chief Risk Officer (CRO) or to the Chief Compliance Officer (CCO). In some cases, however, it reports to another comparable function within the C-suite, such as the COO or CAO, or a regional management office in the case of foreign banks. Like any other risk control organization, the RLO is a department comprised of staff to execute both its tactical and strategic responsibilities. The RLO leader should be a senior executive with the organizational reporting stature with experience to be credible and effective in dealing with executive management and the board, as well as with regulators.
Central to the RL and their RLO's strategic approach is the ability to advise the organization on how current proposed business activities will be affected by shifts in the regulatory landscape. The RLO needs to understand the expectations from their regulators as to how the organization can mitigate the inherent risk. The RLO should be able to anticipate regulatory challenges based on the organization's strategy and risk appetite.
A well-staffed, focused, and highly regarded RLO with the proper executive leadership can be an effective way for an organization to manage regulatory concerns and speak with a single voice to regulators who oversee an organization's operations. Download the report to explore more about the regulatory liaison office.