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How is the role of the CFO evolving in the face of complex global financial regulations?

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The Chief Financial Officer (CFO) is a key member of the C-suite executive management team—high-level executives, including CEOs, CFOs, CCOs, COOs and more—that is responsible for ensuring operational resilience and efficiency of any organisation.

Financial institutions, in particular, rely on astute CFOs to ensure their financial operations remain relevant in the dynamic business environment and their reserves are secure against market risks.

In the last decade, especially, CFOs were instrumental in bailing out financial institutions from the fallout of the 2007-2008 financial crisis—a period where interest rates were low and investments lost value—and setting up strategies and processes for strong performance in the succeeding years.

Traditionally, the role of the CFO spanned managing and monitoring cash flow, financial reporting, investment decision making, financial planning, and managing financial risks. 

That said, in the face of growing challenges and changing regulations, the role of the CFO is evolving. 

Although CFOs have always been responsible for ensuring compliance with accounting regulations and financial reporting mandates, the complex nature of current financial regulations means modern CFOs are involved in more non-financial strategic decisions. 

Today, CFOs assume more responsibilities spanning aspects such as technology transformation, talent and outsourcing arrangements that are not traditionally associated with the finance function.

In this post, let’s explore how the role of the CFO has changed and how it’s helping organisations stay ahead of the complex compliance landscape.

 

Taking increased accountability

Generally, CFOs are held accountable for all activities associated with the finance function. 

Today, as the responsibilities of CFOs have broadened and the distinction between the C-suite executives has blurred, they are held accountable for a wide range of activities, including non-financial mishaps.

In addition, regulators are introducing regulations that hold CFOs personally accountable for non-compliance issues under their authority. 

The Enron accounting scandal, for example, resulted in a six-year prison sentence for its CFO due to following high-risk accounting practices that led to the collapse of share price from $90 to $1 within two years. 

In 2008, the CFO of Broadcom, an American semiconductor company, was indicted alongside the CEO by a federal jury for allegations of securities fraud and conspiracy to backdate stock options.

These scandals have resulted in tighter and more complex regulations like the Sarbanes Oxley Act, which holds CFOs personally accountable for the accuracy of the reports.

 

Responding to risk

Many CFOs view compliance as the biggest risk facing them since they are responsible for ensuring compliance with regulations spanning accounting, financial reporting, Know Your Customer (KYC), and other financial regulations.

Today, the CFOs role has evolved to involve reassessing and restructuring the financial institution’s existing asset portfolio, spanning derisking investment projects to increase its attractiveness to investors, diversifying investment to non-traditional investment assets, formulating defensive and proactive strategies to ensure compliance with asset recovery regulations.

In addition to this, CFOs are also responsible for collaborating with other C-suite executives to implement strategies to minimise organisation risks and align organisational operations with non-financial compliance requirements.

 

Embracing technological change

As financial institutions begin the digital transformation, technological solutions have become an integral part of their internal and external processes. 

While this might not have been considered the authority of CFOs in the past, modern CFOs are faced with different expectations. 

From evaluating technological changes and their impact on organisational revenue to leveraging new technologies for increased operational resiliency, enhancing business execution and improving compliance workflows, and customer value, these are all included in most CFO responsibilities now.

 

The role of a CFO is evolving in the face of compliance challenges

As part of the core group of leaders tasked with ensuring business continuity and operational excellence, the role of CFOs has expanded outside of traditional CFO duties.

As the regulatory landscape and business environment evolve, the scope of the CFO will continue to be transformed.

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