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How CFOs Are Managing the Year of Regulatory Anxiety

finance team discussion

When it comes to compliance, businesses need to grow up — quickly — to compete.

From Apple’s ongoing troubles in the European Union to former FinTech-darling Synapse’s bankruptcy in the United States, the contemporary to-the-letter regulatory and compliance landscape is driving corporate costs up for businesses both large and small. It’s a situation that frequently results in a downstream impact on their own partners and customers.

In today’s volatile business environment, insights from PYMNTS’ A Day in the Life of a CFO series show that risk management is becoming a critical aspect of the chief financial officer’s role.

Historically regarded as the custodians of financial stewardship, finance leaders are now seeing their function evolve into one that is pivotal in navigating the complexities of compliance and risk management.

From monitoring macroeconomic trends and surging geopolitical risk to the imperative to safeguard organizational integrity and adhere to corporate governance and regulatory standards, the expectation for modern CFOs to act as strategic partners to the CEO and the board, providing insights that guide corporate strategy, has never been higher.

This transformation is partly fueled by the growing recognition that financial performance is inextricably linked to risk management and compliance, and it has been given a shot in the arm by the ongoing globalization of the connected business landscape, where companies must balance a host of different global regulations that have fundamentally altered the governance landscape.

Read also: Will Regulators’ Public Shaming Blunt Innovation?

The Interplay Between Compliance and Risk Management

Compliance and risk management are intertwined disciplines that collectively contribute to an organization’s stability and success. Compliance involves adhering to laws, regulations and internal policies, while risk management focuses on identifying, assessing and mitigating risks that could impede organizational objectives.

“[Y]ou have to think about managing the risk of the organization,” CSI CFO Ken Gayron told PYMNTS this month.

“The CFO and the CEO are really the two positions that see the entire business,” he added.

CFOs play a role in integrating these functions into the overall governance strategy. They are responsible for establishing and maintaining an effective internal control environment that promotes compliance and mitigates risks. This involves designing policies and procedures, conducting risk assessments, and ensuring that the organization has the necessary resources to address compliance and risk-related challenges.

“We need to make sure we are balancing innovation with structure and reliability,” Pushpay CFO Burt Chao told PYMNTS this month, adding that while “old school CFOs were the ‘no police’ … flexibility in today’s environment requires not only proactively generating opportunity but also managing risk.”

See also: Thredd CEO Counts on Regulators to Address Vulnerabilities of Banking as a Service

Compliance Can Be Both Growth Driver and Corporate Strategy

While the prevailing wisdom across the payments and financial services marketplace, particularly for startups and younger firms, used to be that growth was the single most important criterion, now, companies need to scale smartly rather than rapidly.

“It’s time to make compliance a force for growth,” Sovos CEO Kevin Akeroyd told PYMNTS in April, noting that among businesses there’s both a palpable shift toward conservatism and risk mitigation.

Effective compliance and risk management extend beyond policies and procedures; they require a culture of compliance embedded within the organization. CFOs, as leaders, must champion this culture, promoting ethical behavior and accountability at all levels.

“CFOs are always playing offense, but you’re also playing defense,” DailyPay CFO Ken Brause told PYMNTS in May. “And that plays into risk management.”

Increasingly, technology has had a dual impact on compliance and risk management. On one hand, technological advancements provide CFOs with sophisticated tools to enhance governance. For instance, data analytics and artificial intelligence can help identify potential compliance issues and assess risks more accurately. On the other hand, technology introduces new risks, such as cybersecurity threats and data breaches, that CFOs must manage.

Technology, especially AI, has accelerated the success of finance teams by providing real-time access to data and insights,” Brian Unruh, CFO at global AI company ABBYY, told PYMNTS this month. “This allows us to proactively address issues before they become significant problems, rather than just reporting on them after the fact.”

Ultimately, the complexity of modern compliance and risk management demands collaboration across various functions within the organization. CFOs must work closely with legal, IT, operations and other departments to ensure a cohesive approach to governance. This interdisciplinary collaboration is essential for identifying risks, implementing controls and responding to compliance challenges effectively.