Compliance functions in banks are often not seen as strategies, but as necessary evils that must be dealt with. Often, compliance officers are in the unenviable position of saying “no” frequently, and thus might be viewed as obstacles to business growth.
However, treating compliance function and strategy as adversaries is a missed opportunity. When the two parties communicate and collaborate effectively, they can create competitive advantages for banks.
Introduction to Compliance Function in Banks
Compliance functions help in managing risks in banks. They help to ensure that banks adhere to relevant internal policies, regulations, and laws. The compliance process involves identifying the level of risk in products and processes and business lines, advising functionaries, and developing instructions for risk mitigation.
The role of compliance officer is a defensive one: preventing violations of the aforementioned rules and regulations. Generally, the more complex the technological, regulatory and business environment, the more complex the defense.
Along with internal audit and risk management, compliance is a crucial part of internal control systems. Without the compliance function in banks, regulators can bring significant enforcement actions. The repercussions can include key employees quitting, stock price falling, compliance costs increasing, and exiting crucial businesses.
Currently, financial institutions continue to be challenged by disruption. Think fintech, changing customer demands, and new competitors. And the stakes are high right now: while emerging technology offers promise, a fluctuating geopolitical and economic landscape creates new risks.
Compliance Functions: Core Tasks
The role of compliance officer has expanded over the years, partly due to financial crises. Aside from demonstrating compliance with regulations, it now covers areas including but not limited to:
Developing yearly compliance plans
Ensuring customer protection
Promoting new types of customer or business relationships
Prevention of terrorist financing & money laundering
Resolving regulatory failures
Managing conflicts of interest
Educating, assisting & advising staff on compliance issues
Preventing market manipulation & abuse
Minimizing reputational risks
Enhancing corporate image
Importance of Involving Compliance Officers Early in Ideation Process
New product ideas – such as banking apps – will enjoy better outcomes if compliance is integrated from the beginning. It is frustrating to have a brilliant idea, only to have a compliance officer say it will not work.
Ideally, everyone should be on the same page from the start. The compliance team should understand the new products while bearing in mind relevant regulations
Implementing Compliance Functions in Banks
When strategy leaders and compliance officers collaborate, they create many benefits. Areas of collaboration may include:
Investing in fast-changing areas
Streamlining client experience
Securing against geopolitical fluctuations
Compliance is not an activity you do once. As regulators expect more information from financial institutions, compliance functions need to become a part of daily business operations. Part of this is supplying employees with the correct training and tools, which will help them remain compliant even in the face of frequent change.
To help ensure a sustainable compliance program, here are some guiding principles:
Utilize Governance, Risk and Compliance (GRC) tools more effectively to establish information standards early on.
Policies should be reviewed sooner rather than later to help develop a centralized and standardized directory.
Changes should be reviewed frequently. This will help in understanding what regulators are searching for and preparing for potential regulation changes, further reducing your compliance risk.
Furthermore, according to experts, there are certain basic building blocks of effective compliance functions, including:
Compliance checklist or manual
Regulatory Compliance for Specific Industries
Institutional investors are assumed require less protection, as they are considered to be in a position to fend for themselves. They thus deal with more relaxed disclosure requirements.
Regulators tend to be especially stringent with retail investors. For instance, there are strict registration and disclosure requirements that are supposed to make sure that investors understand all the risks and details of an investment. This is meant to protect “mom and pop” investors.
Opportunities and risks for poor outcomes for investors are even higher when it comes to cryptocurrency. Since cryptocurrency presents a new set of challenges and is still undergoing many changes, robust controls will be expected.
Banks have an opportunity to create a positive impact through collaboration between their business and compliance strategists. They can realize the full potential of this by understanding how to build processes, systems and capabilities that will enable them to scale up collaboration.
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