Financial Crime World

Effective Compliance Testing: A Three-Pronged Approach

In today’s complex regulatory landscape, ensuring effective and efficient compliance testing is crucial for businesses to maintain their reputation and stay ahead of the competition.

The Challenges of Effective Compliance Testing

A recent study by PwC has revealed that many organizations are struggling to perform effective compliance testing due to inadequate alignment between different lines of defense. The first line of defense often performs independent testing, while the second line plans and executes compliance testing, and the third line conducts yearly testing activities in silos.

“This lack of coordination can lead to duplication of effort, inconsistent reporting, and a drain on resources,” said Robert Borja, Assurance Partner at PwC. “Ultimately, this can have a negative impact on customers and productivity.”

A Three-Pronged Approach to Overcome Challenges

To overcome these challenges, PwC recommends adopting a three-pronged approach:

Clearly Defined Roles and Responsibilities

Ensure that each line of defense has clearly defined roles and responsibilities regarding compliance testing, and communicate them effectively to employees.

Standardized Testing Tools and Methodologies

Standardize testing tools, methodologies, and procedures across the three lines of defense to improve effectiveness and efficiency.

Coordinated Activities

Integrate coordination activities within the yearly compliance process and audit process to ensure alignment at all stages.

Enhancing Efficiency with Technology-Based Compliance Testing

Additionally, PwC suggests introducing technology-based compliance testing tools, such as:

  • Data analytics
  • Robotics
  • Natural language processing

to enhance efficiency.

“The key to lean and effective compliance testing is a clearly defined process and aligned activities between the three lines of defense,” said Véronique Besson, Assurance Director at PwC. “By adopting this approach, organizations can improve their compliance testing and reduce the risk of non-compliance.”

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