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Banks Must Integrate Compliance Frameworks to Avoid Large Fines

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In today’s increasingly complex regulatory landscape, banks are facing unprecedented challenges in managing compliance risks. A recent trend has emerged, where financial institutions are recognizing the need for a comprehensive compliance framework that is fully integrated with their operational-risk view.

Benefits of Integration

By integrating these two frameworks, banks can reap significant benefits:

• Provides a holistic view of risk management, ensuring no material risk goes unattended
• Reduces the burden on both business and control functions, eliminating duplicative risk assessments and reporting activities
• Enables a risk-based allocation of resources and management actions for remediation and investment in cross-cutting controls

Practical Steps to Achieve Integration

To achieve this integration, banks must take practical steps to align their compliance function with overall governance, regulatory affairs, and issue-management processes. This includes:

• Developing a single inventory of operational and compliance risks
• Maintaining standardized taxonomies
• Coordinating risk assessment methodologies
• Defining clear roles and responsibilities

The Shift in Compliance Function

A recent trend among global banks has seen the migration of compliance functions from legal to risk organizations. This change reinforces the view of compliance as a risk similar to operational risk, rather than an advisory function. Some institutions have even elevated compliance to a stand-alone function, positioning it alongside internal audit with clear separation from business.

Measuring Progress: A 10-Point Scorecard

To ensure success in this transformation, banks must be able to measure progress against desired outcomes. We recommend applying a 10-point scorecard, which assesses factors such as:

• Demonstrated focus on compliance
• Integrated risk ownership
• Strong risk culture

Banks with low scores may require significant transformation efforts. By rigorously measuring progress against these requirements, institutions can maximize the impact of their transformation and ensure effective program status and effectiveness.

The Opportunity for Compliance

In an era where regulatory compliance has become increasingly challenging, banks have a unique opportunity to get ahead of the curve by implementing targeted changes to their operating model and processes. By doing so, they can deliver better quality oversight while increasing efficiency.

Banks that successfully make this shift will enjoy a distinctive source of competitive advantage in the foreseeable future, being able to deliver better service, reduce structural cost, and significantly de-risk their operations. In today’s regulatory landscape, it is more important than ever for banks to integrate their compliance frameworks to avoid large fines and maintain a strong reputation.

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Keywords

• Compliance framework
• Operational risk
• Integrated risk management
• Regulatory affairs
• Issue-management processes
• Scorecard assessment
• Transformation efforts