Beyond borders: ensuring compliance in international corporate structures

Exploring some of the key considerations required to manage non-compliance in corporate group structures with Chris Mayfield, Head of Business Development for corporate services in EMEA.

In today’s global business environment, once a company gets above a relatively small turnover threshold, it is likely to have some international elements to its group structure. This could range from a simple, single investment or holding structure through to a fully formed collection of international operating companies. Whilst these international structures can bring significant benefits to a business, they also bring with them an inherent risk from a compliance perspective that needs to be properly managed.

What effects can international non-compliance have on businesses? 

Financial 

Failing to file, filing incorrectly or filing late often incurs fines from the local regulator. These fines often increase incrementally with time and end up having a direct impact on the profitability of the entity in the region.

Resource 

Non-compliance normally leads to additional paperwork and processes that need to be undertaken. These may require specialist knowledge from local advisors to complete and could even require in-person attendance at a regulator’s office. 

Reputation 

In a jurisdiction, a non-compliant entity may be ‘red-flagged’ when it comes to obtaining finance or entering local contracts. Suppliers, partners and clients who perform due diligence before entering a business relationship may choose not to work with the non-compliant entity. Non-compliant entities can also have a detrimental impact on inward investment.

How can you manage the risk? 

Ensuring compliance across various jurisdictions is crucial for businesses, and it requires a well-thought-out strategy. First and foremost, the business needs to fully understand the current compliance requirements and the annual reporting timetable for each jurisdiction in which the entity exists. Having this information ready well in advance can save any last-minute stress and potential penalties. 

Adopting a best practice approach to governance and compliance is more than just a box-ticking exercise. It involves implementing robust policies and procedures that not only meet regulatory requirements but also enhance an organisation's overall governance framework. 

Working with a local compliance partner in each jurisdiction can be immensely beneficial. These partners have a deeper understanding of local regulations and can offer tailored advice on how to stay compliant. They can also help horizon scan for upcoming regulatory changes, allowing businesses to adapt well in advance. Some new international regulations come with 'lookback' clauses, which means they can affect businesses even before they come into effect. 

Managing regional personnel risk is another key aspect of compliance. If a business relies on sole directors or bank signatories in certain jurisdictions, it's essential to have contingency plans in place for scenarios where these individuals may suddenly depart the business due to sickness or disputes. Businesses need to ensure that they can still access their bank accounts and fulfil their local compliance reporting duties. 

Good communication and regular meetings with the regional legal and compliance partners is vital. Even if local regulations remain unchanged, the mindset and motivation of the regulator can shift. Different compliance items may become prioritised, and penalties can be adapted accordingly. Staying in constant communication helps to stay ahead of these changes.

In addition to these steps, maintaining thorough documentation of all compliance activities and decisions is crucial. Continuous education and training on compliance requirements and best practices can further strengthen an organisation’s compliance culture. Consider leveraging technology solutions, such as compliance management software, to streamline processes and ensure that nothing slips through the cracks. 

By following these steps and fostering a proactive compliance culture, businesses can navigate the complex regulatory landscape with confidence and protect themselves from potential risks. 

How can Ocorian help? 

Ocorian has a team of highly experienced regulatory and compliance practitioners located in offices across 20 locations throughout Europe, Africa, the Middle East, Asia and the Americas. We service the varied needs of companies and financial institutions, helping businesses enter new markets and navigate an increasingly complex international regulatory environment. Our global corporate services team has extensive local networks and detailed local knowledge to ensure international structures are supported to the highest possible standard. 

For more information, contact Ocorian's corporate administration and compliance team.