Risk‐based compliance monitoring

This paper sets out the fundamental generic concepts behind applying a risk‐based approach to monitoring compliance with PIA's regulations. It also looks at some of the practical considerations for implementing such a system. Every insurance company understands the concept of identifying and measuring risk for the purpose of underwriting — but few apply this skill to risks the company faces in terms of compliance with PIA regulations. Each of the regulators is beginning to use risk assessments to focus their monitoring activity. IMRO have recently issued a ‘scorecard’ which includes ten questions, positive answers to which would indicate an effective compliance regime. The other regulators are at varying stages of designing and implementing such systems. The ultimate objective of such tools is a reduction in the level of monitoring by the regulators for those firms who are able to demonstrate a sound compliance culture. The benefits of risk‐based compliance monitoring can be huge. In addition to potentially substantial cost savings in the longer term, this approach should lead to better control of the business and increased flexibility in response to changes in the marketplace and the customer base.