Measuring country risks - IntegraRating® | Compliance Focus Analysis

June 3, 2014

Let’s face it: compliance budgets are tiny in comparison to those of other functions within a large company. In addition, the compliance function is truly global, following every aspect of the company’s operations in every country. Compliance must think about where to prioritise its precious resources – whether it be people, tools, technology, audits or training.

One of the determining factors of these priorities is where you are doing business. There are some countries with more compliance risks than others, and there are some countries where the investment in a compliance programme will give you better results than others. Understanding where to spend the budget to get the best return is the aim of The Red Flag Group’s IntegraRating® | Compliance Focus Analysis.

Very few companies have the time and resources to conduct a risk analysis on every country in which they operate. Instead, they tend to rely on published country ratings that are based on “perception” – not business experience in operating in that country or, more importantly, experience in implementing a compliance programme in that country.

Introducing the IntegraRating® | Compliance Focus Analysis – Country 2014

No two countries are the same. Why should your local compliance initiatives be the same?

As compliance officers, you want to know what you should focus on when you are implementing compliance in different countries.

Each IntegraRating® | Compliance Focus Analysis rating is based on two factors:

The Compliance Landscape looks at the country itself and what “compliance” is like in that country. It looks at whether laws are in place for the typical compliance areas, whether those laws are enforced, and what the overall attitude is with regard to that country’s legal infrastructure.

The second part of the rating, the Degree of Ease to Implement a Compliance Programme, takes into consideration the ability and effectiveness of implementing a compliance programme in that country. It considers how easy it would be to hire a compliance team, the ability to change behaviours of local employees in that country, the ability to implement effective controls, the ability to train employees, and the ability to investigate and remediate issues. These factors help to determine whether a compliance programme would actually work by asking whether a company could effectively change the culture in a workforce, whether controls are likely to work, whether issues are likely to be reported and whether the company would have the ability to remediate issues once they became aware of them. In essence, this section measures whether you would get a return on your investment in the form of better compliance if you went ahead and invested in compliance in a particular country.

How to use the IntegraRating® | Compliance Focus Analysis – Country 2014

The IntegraRating® | Compliance Focus Analysis can be used by companies in multiple ways:

  • Country risk identification

Use the IntegraRating® | Compliance Focus Analysis to determine the compliance risks in a given country to know where you should focus your compliance efforts. Ideally, this should be customised by The Red Flag Group consultants to align with your company’s operations in certain countries. This will ensure that your company’s actual business risks are reflected in the rating system by considering which countries are your investment-led countries, and where you have had previous issues.

  • Budget planning for compliance initiatives

Compliance budgets are small compared to the overall budgets of other functions. Using the IntegraRating® | Compliance Focus Analysis will help you discover where you will get the best return on your compliance dollar.

  • Focus on certain compliance activities in particular countries

Everyone knows about “architect globally and implement locally”; however, very few people actually do this over and above a few translations and local examples. The IntegraRating® | Compliance Focus Analysis will challenge you to look more broadly at what you actually focus on in a particular country. In some countries you should focus on controls, as no amount of training is going to change people. In other countries compliance will not yield much of a return unless things such as laws and regulatory structure are changed, so you would be far better off just doing the basic compliance and focusing your attention on government lobbying and working with other industry partners and non-government organisations to push the government towards a more structured legal system.

  • Apply the index to your third party compliance programmes

Many companies conduct routine due diligence on their suppliers, resellers and distributors. In these programmes a very large number of third parties need to be risk rated, and country risks are considered as part of that assessment. Rather than using a rating system based on perceptions of corruption, the IntegraRating® | Compliance Focus Analysis can be used as a guide on where to invest and prioritise the due diligence process.

  • Staffing your compliance programmes

If the IntegraRating® | Compliance Focus Analysis is customised to your business by The Red Flag Group consultants you will be able to assess which is the best country to invest in compliance, either from a headcount perspective, in audits, in training, or with predictive monitoring solutions. The results of a customised IntegraRating® | Compliance Focus Analysis might show that the gain from successful implementation might be better in a country with a lower risk rating than in a country with a high risk rating where compliance will be expensive but will yield little difference (in other words, for every dollar of compliance spent in that country you are likely to generate better returns).

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