Fines: The New Normal for Financial Institutions
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As regulatory pressures continue to mount, financial institutions are facing unprecedented challenges in managing compliance risks. In response, banks are recognizing the need for a modern compliance framework that is fully integrated with operational-risk management.
Benefits of Integration
By integrating compliance risk management with operational risk, banks can achieve several tangible benefits:
- Comprehensive View: Provides a comprehensive view of the portfolio of risks and visibility into systemic issues.
- Reduced Burden: Reduces the burden on both business units and control functions by eliminating duplicative risk assessments and remediation activities.
- Risk-Based Allocation: Enables a risk-based allocation of enterprise resources and management actions on risk remediation and investment in cross-cutting controls.
Practical Actions
To achieve this integration, banks can take several practical steps:
- Develop a single inventory of operational and compliance risks
- Establish standardized risk, process, product, and control taxonomies
- Coordinate risk assessment, remediation, and reporting methodologies and calendars
- Define clear roles and responsibilities between risk and control functions
- Develop integrated training and communication programs
- Establish governance processes and structures with mandates that span across risk and support functions
- Consistently involve senior compliance stakeholders in determining action plans and prioritization of issues
Organizational Structure
As banks integrate compliance into their overall risk management framework, they are also reevaluating the organizational structure of their compliance function. Some institutions are moving compliance to a standalone function, while others are integrating it with operational-risk management.
Measuring Progress
To measure progress on this journey, financial institutions can apply a ten-point scorecard that assesses their focus on compliance, risk ownership, and independent challenge. The scorecard also evaluates the bank’s operating model, inventory of laws and regulations, use of quantitative metrics, and talent and capabilities.
Conclusion
In conclusion, regulatory compliance has become a new normal for financial institutions. By integrating compliance into their operational-risk management framework, banks can achieve greater efficiency, reduce costs, and de-risk their operations. Those that successfully make this shift will enjoy a competitive advantage in the foreseeable future, delivering better service, reducing structural cost, and significantly improving their risk profile.
Fines: The New Normal
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In today’s regulatory landscape, fines are an unfortunate reality for financial institutions. However, by taking proactive steps to integrate compliance into their operational-risk management framework, banks can reduce their exposure to these costs and improve their overall performance.