Regulatory compliance testing is the activity in which a regulated firm examines samples of its own transactions, files and controls to verify that regulatory requirements are being met in practice. It is carried out by the compliance function as part of the second line in the three lines model, and it is distinct from continuous monitoring, which tracks indicators, and from internal audit, which gives independent assurance over the whole control framework.
Testing follows an annual plan built on the firm's compliance risk assessment, so that higher-risk areas are tested more often. For each review the tester defines the requirement, selects a sample, inspects the evidence, records exceptions and rates the result. Findings are reported to management with agreed actions and deadlines, tracked to closure and summarised for the board. The general concept is described under compliance testing, and it sits within the compliance monitoring programme.