Compliance Monitoring: Where Accountants and Finance Teams Fit In

Compliance monitoring sounds like something that belongs entirely to the compliance department. At an FCA-regulated firm it doesn’t. Some of the areas the regulator cares about most, from client money and safeguarding to regulatory returns and the fairness of charges, sit squarely in the finance function. When compliance tests those areas, it is testing the work of accountants.

That makes monitoring relevant to finance professionals in two ways. If you work in finance at a regulated firm, your processes will be monitored, and understanding how that works makes the reviews more useful and less disruptive. And if you are an accountant thinking about a move into compliance, monitoring is often the most natural way in, because the skills it needs are ones audit and finance training already provide.

We’ve published a detailed guide on the subject at SMF Capital, Compliance Monitoring Explained, covering the rules, programme design, testing methods and board reporting. This article looks at it from the finance side.

What Compliance Monitoring Is

Compliance monitoring is the planned, regular testing of whether a firm does in practice what its policies and the rules require. It sits in the second line of defence: the business runs its processes and controls (the first line), compliance tests them (the second line), and internal audit provides independent assurance over both (the third line).

It is a regulatory expectation rather than good practice. The FCA’s systems and controls rules in SYSC 6.1 require firms to have adequate arrangements to ensure they comply with their obligations, and investment firms within MiFID must run a permanent, risk-based monitoring programme. For retail firms, the Consumer Duty adds a duty to monitor the outcomes customers actually receive, including whether the price they pay represents fair value.

The Finance Areas Monitoring Tests

The detail depends on the firm, but these are the areas where compliance monitoring most often lands on finance.

Client money and custody assets

Firms that hold client money or assets must follow the FCA’s CASS rules. Daily or periodic reconciliations, the segregation of client money, acknowledgement letters, record-keeping and the monthly CMAR return are all finance-led processes, and all are core monitoring areas. CASS breaches are among the most common causes of regulatory action against smaller firms. Our guide to CASS and client money oversight explains the framework.

Safeguarding at payments and e-money firms

Payment and e-money institutions must protect customer funds through safeguarding, usually by segregating them in designated accounts. The reconciliations, the resolution of shortfalls and the annual safeguarding audit all involve finance. The FCA has made safeguarding a priority for the sector, and monitoring will test it closely. See our guide to safeguarding for payments and e-money firms.

Regulatory reporting

Most regulated firms submit regular returns to the FCA: financial data, capital and liquidity figures, complaints data and more. Monitoring tests whether these returns are accurate, complete, submitted on time and supported by proper reconciliations and sign-off. Errors in returns are a frequent finding. Our guide to FCA regulatory reporting covers who is responsible.

Capital and liquidity

Firms with prudential requirements must hold enough capital and liquid assets, and many must carry out regular internal assessments of what they need. Monitoring may test whether the calculations follow the rules, whether thresholds are tracked and whether the board receives the right information.

Charges, fees and fair value

Under the Consumer Duty, retail firms must be able to show that their products and services offer fair value. That relies on financial analysis: cost allocation, pricing data and comparisons across customer groups. Monitoring tests whether the fair value assessment is evidenced and whether charges applied to customers match what was disclosed.

Monitoring, Internal Audit and External Audit

Accountants moving into compliance sometimes assume monitoring is just audit under another name. There is a lot of overlap in method, but the purpose is different.

Why Audit Skills Transfer So Well

A good compliance monitoring reviewer does many of the things an auditor does. They plan work around risk, choose samples, test evidence against a standard, document what they find, rate its seriousness and agree actions with management. They also have to write findings that people will accept and act on, and present them to senior management.

Accountants with audit experience already have most of that toolkit. What they usually need to add is knowledge of the conduct rules being tested: suitability, affordability, financial promotions, complaints handling, vulnerable customers and financial crime. That knowledge can be built through study, such as the International Compliance Association’s qualifications or the CISI’s compliance and risk certificates, and through experience on the job.

The reverse is also true. Compliance teams often lack people who are comfortable with reconciliations, data analysis and financial controls. An accountant in a monitoring team can test CASS, safeguarding and regulatory returns with a depth that a reviewer from a purely conduct background may not reach. We wrote about this in why CASS experience has to be specific.

A Career Route Into Compliance

For accountants interested in a compliance career, monitoring is often the most practical first step. Typical routes include:

• moving from external or internal audit into a compliance monitoring analyst or manager role at a bank, insurer, wealth manager or payments firm
• moving from a finance role at a regulated firm into its compliance team, starting with monitoring of finance-led areas such as CASS or safeguarding
• joining a compliance consultancy that provides outsourced monitoring to smaller firms, which gives exposure to many businesses quickly

From monitoring, the path leads to compliance management and, for some, to the compliance oversight function itself. The SMF16 holder at a smaller firm usually designs and runs the monitoring programme, so a track record in monitoring is strong evidence for that role. Our page on compliance officer recruitment sets out what firms look for in an SMF16 appointment.

Working Well With Compliance Monitoring

For finance teams on the receiving end of monitoring, a few habits make the process smoother and more valuable:

• Keep evidence as you go. Reconciliations, sign-offs and breaks should be documented at the time, not reconstructed when a review is announced.
• Agree realistic actions. An action you can’t deliver by the date will become an overdue finding in its own right.
• Fix the cause, not the symptom. Repeat findings in finance areas usually point to a process or system weakness rather than a one-off error.
• Use the findings. Monitoring results are free evidence of where controls need investment, and can support a business case for resources.

Read the Full Guide

For the full picture, including how to build a risk-based programme, sampling methods, reporting to the board, an annual monitoring cycle and how firms resource the work, read Compliance Monitoring Explained on the SMF Capital website.