Four practical ways to implement effective compliance programs

The utility sector is one of the most regulated in the country, if not the world. The quantity and complexity of regulation applying to the industry is increasing daily, as are the penalties for non-compliance. Compliance is moving from an abstract concern to an area requiring direct and focused attention. This article explores four practical ways that leaders in utility businesses can implement effective compliance programs.

INCREASING REGULATION

Most utility businesses operate under licence conditions, codes, and State and Commonwealth legislation. Those who draft and enforce such regulatory obligations have little understanding of how challenging it is for businesses seeking to do the right thing and comply.

When looking at compliance, one of the first (and most difficult) steps to take is to understand all the applicable obligations and their applications in different business models and at different points in operation. That is a step that continually needs to be taken as a business expands and regulation changes.

Regulation is largely reactive rather than proactive as it seeks to prevent the re-occurrence of conduct or outcomes that are deemed to be negative, whether to consumers, the environment, employees, or society at large. Therefore, most regulation is prescriptive following a set formula which is: c (Compliance) = x (Action) in y (Circumstances).

The challenge then becomes understanding what x requires and when y is present. A comprehensive and current obligations register is critical for complex businesses, such as utilities. Separately, there are various principles that underpin regulatory obligations i.e. the rationale behind regulation. Those principles need to be understood and an effective compliance program addresses not only prescriptive regulation but the principles behind that regulation.

PRACTICAL SOLUTION 1: PRIORITISE COMPLIANCE

The single factor that is most important in determining the success or otherwise of a compliance program is the attitude of upper management and the leadership team.

Boards set priorities by their words and actions. Compliance needs to be one of those priorities in the same way that revenue generation usually is. In larger businesses, there are typically many layers between the board and employees who carry out the day-to-day functions that are critical in determining compliance or otherwise.

Setting compliance as a priority allows a culture of compliance to develop. That means that all employees understand the importance of compliance, the need to act in a compliant manner, and to call out potential and actual non-compliance. PRACTICAL SOLUTION 2: EMBED COMPLIANCE IN DECISION MAKING

Compliance is a critical component of decision-making. There is no point in having a compliance program that is well-staffed but where compliance staff have no say in the decisions a business makes.

To embed compliance in decision making, those with expertise should be involved in all critical decisions, including price changes and entry and exit from markets. That means involving your compliance team in operational and financial meetings and ensuring that they understand changes that are occurring in your business and your industry.

PRACTICAL SOLUTION 3: RESOURCE COMPLIANCE

The resources that a compliance function requires include internal and external expertise, access to databases and registers and other compliance tools.

Understandably, it can be difficult to justify spending more on what is seen by some as a cost centre. Compliance should be resourced if a business wants to operate in a compliant manner, to avoid penalties, and to have a good reputation with regulators and other stakeholders.

The financial justification for spending more on compliance is the reduction in the likelihood of a penalty or other enforcement outcome and the cost of that penalty or other enforcement outcome.

For example, for energy retailers, a civil penalty breach may result in a penalty that is the greater of: i) $10 million, ii) ten per cent of global turnover, or iii) three times the benefit received by the business from the breach. Would it be justified to spend $300,000 on a compliance system if it is going to reduce the likelihood of a $10 million breach by ten per cent?

PRACTICAL SOLUTION 4: CHECKLISTS

The simple checklist is a powerful tool that can be employed in compliance. Your compliance staff should be asked to develop checklists for all areas of operation and for key changes in the business. Checklists should be kept up to date and reviewed on a consistent basis. The simple checklist allows a business to review and confirm compliance quickly.

Compliance is a tricky and complex process, but it’s possible to navigate with the right approach. The quantity and complexity of regulation is only set to increase, and there is never a better time to examine your compliance program than right now.