Compliance Function Seeks Deeper Understanding of Regulatory Environment

In today’s rapidly evolving regulatory landscape, financial institutions are undergoing a significant transformation within their compliance functions to stay ahead of the curve. The goal is to increase efficiency while delivering better oversight, ultimately gaining a competitive advantage.

Integrating Compliance into Risk Management Governance Structure

To achieve this, banks are implementing targeted changes to their operating models and processes. The focus is on integrating compliance into the overall risk management governance structure, aiming to reduce the burden on both business and control functions by minimizing duplicative assessments and remediation activities.

Key Approaches for Compliance Transformation

• Develop a single integrated inventory of operational and compliance risks, providing a more holistic view of the organization’s risk profile.
• Standardize risk, process, product, and control taxonomies to ensure consistency across all areas.

Evolving Role of the Compliance Function

The compliance function itself is undergoing changes. Some institutions are elevating it to a stand-alone role, similar to internal audit, while others are integrating it into the risk organization. This new structure reinforces the view of compliance as a risk similar to operational risk and as a control rather than advisory function.

Measuring Progress with a Ten-Point Scorecard

To measure progress on this journey, financial institutions can use a ten-point scorecard to assess their transformation efforts. Key areas include:

• Demonstrated focus on the role of compliance
• Integrated risk ownership
• Clear tone from the top
• Evidence of senior-management involvement and active board oversight

Benefits of Compliance Transformation

By implementing these changes, banks can better navigate the complex regulatory environment, reduce structural costs, and de-risk their operations. In doing so, they will be well-positioned to deliver a better quality of oversight while increasing efficiency, ultimately gaining a competitive advantage in the marketplace.

Key Takeaways

• Compliance functions are undergoing a major transformation to stay ahead of the curve in today’s rapidly evolving regulatory landscape.
• Banks are implementing targeted changes to their operating models and processes to increase efficiency while delivering better oversight.
• The compliance function is being integrated into the overall risk management governance structure to reduce duplicative assessments and remediation activities.
• Financial institutions can use a ten-point scorecard to measure progress on this journey, assessing areas such as risk ownership, tone from the top, and board oversight.
• By implementing these changes, banks can better navigate the complex regulatory environment, reduce structural costs, and de-risk their operations.