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Researches 3 November 2020

Study: How and Why Companies Develop Compliance

Study: How and Why Companies Develop Compliance

Risk management, or compliance control, is becoming a common procedure in Ukrainian companies. In recent years businesses have appreciated the need for compliance and are more willing to allocate resources for monitoring and reporting. Even within a few years significant changes can be observed, this article is about them.


At present Ukrainian companies create separate compliance departments, and for violating anti-corruption measures sanctions are imposed. There are only few companies that do not have a hotline, and the share of those that have an online portal to report violations has increased.


According to the study conducted by the international organization KPMG, over the past two years (2018-2020) compliance requirements and technologies have evolved, and Compliance Tech is becoming a separate direction and requires new skills to apply its capabilities.


What Companies Implement Compliance in Ukraine


Companies in the following fields:


• Communications and information transfer;

• Pharmaceutics;

• IT;

• Retail.


Two years ago there were much fewer of them. For example, now there are 11% of such IT companies compared to 4,4% in 2018. Representatives of the banking sector did not participate in the study due to the specifics of regulating their activity in the field of compliance.


As for the financial expenses, now the annual budget of the compliance department of half of the respondents (54%) does not exceed 50 thous. USD.


What Companies Need Compliance For


The main purpose of checking counterparties is the security of specific agreements and the welfare of the company. In addition, companies comply with legal requirements, standards or contract terms. 96% of respondents said that the requirements of the local anti-corruption legislation were applied to their company.


• 81% of companies check the compliance of transactions with the requirements of the tax authorities;

• 72% seek to detect a conflicts of interests;

• 70% make sure whether they meet the requirements of the local anti-corruption legislation;

• 70% aim at fraud prevention checking;

• 61% implement the compliance of sanctions;

• 51% must confirm the compliance with the requirements of the foreign anti-corruption legislation;

• 28% monitor the compliance with the requirements of the partner, the condition of work with whom is the presence of a procedure for checking counterparties in the company.


What Is Emphasized When Assessing Risks


• 88% of respondents emphasize the signs of fly-by-night companies;

• 84% are interested in court cases of counterparties;

• 77% track the presence of a company, its management and beneficiaries on the “black” and sanctions lists;

• 76% consider a moment of affiliation, a conflict of interests between counterparties, participants or employees to be important;

• 73% analyze the financial stability of business partners;

• 72% and 70% seek the presence of corruptional and reputational risks;

• 69% seek to know the ultimate beneficiaries of a counterparty;

• 54% check the fulfillment of obligations to other counterparties;

• 24% consider the absence of anti-corruption policies and procedures in the partner company to be unacceptable.


Who Controls Compliance in Companies


81% of respondents admitted that they had only one department that checked counterparties. And in most companies the security department plays this role (34%).

In 17,5% of the surveyed companies a specialized compliance department is responsible for checking counterparties, and 13,5% of companies entrusted it to the legal department.

But in 15% of companies the collection and analysis of information about counterparties is performed in parallel or sequentially by different departments. These are usually the legal, finance, compliance departments and the security service.


The functions of checking counterparties are assigned to:


• 34% the security department;

• 17,5% the compliance department;

• 13,5% the legal department;

• 12% a separate employee;

• 3% the finance and accounting departments;

• 1% the risk management department.


In half of the cases the number of employees of the compliance department is limited to 2–5 persons (50% of respondents) or even to only 1 person (35% of respondents). Only 15% of companies entrusted compliance checking to more than ten managers.


Where Companies Get Data on Counterparties


Data sources for checking counterparties are different, but the quite typical ones are:


• 77% of companies search for information in the mass media and on the Internet;

• 73% address commercial databases (SPARK-Interfax, World-Check, Dun & Bradstreet);

• 61% use official corporate registers;

• 59% trust information directly from a counterparty;

• 57% make requests to the archives of court cases and 45% – concerning enforcement proceedings;

• 38% apply to the security service sources;

• 34% use internal databases;

• 4% use the services of detective agencies.


It is interesting to know that among other operational processes checking of counterparties is best automated. That is, a large number of companies transfer routine manual processes into machine algorithms. It is already obvious that automatic information processing will be a trend in the coming years.


In addition, companies order the professional risks assessment from specialized companies. In this case the invited compliance experts conduct a research and give a written opinion determining the degree of risk of a partnership.


YouControl specialists provide such a service by analyzing information from more than 100 official sources. By mid-September 2020 more than fifty representatives of Ukrainian businesses had already used the examination of compliance risks of a counterparty from YouControl. Companies are aware of the risks and seek to avoid them through preventive measures implemented by compliance.


The study shows the state and trends of the development of a compliance function in companies in the coming years. And on the basis of this information it helps form your own appropriate strategy of business processes and the compliance system.


Check a counterparty right now!


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