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Compliance Function Crucial to Effective Operations in AI Sector

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In a move aimed at strengthening the financial sector, the Bank of Papua New Guinea (BPNG) has implemented new guidelines requiring all Authorized Institutions (AIs) to establish an effective compliance function.

Prudential Standard for AIs

According to the prudential standard, AIs must develop and implement policies and procedures designed to ensure compliance with relevant laws and regulations. This includes:

  • Monitoring and escalation procedures
  • Reporting procedures
  • Educating staff on compliance issues

The compliance function is responsible for:

  • Advising the Board on compliance matters
  • Identifying and assessing compliance risks associated with business activities
  • Providing assurance to the Board on the adequacy of compliance procedures

Key Requirements

A key requirement is that the compliance function be:

  • Permanent
  • Effective
  • Independent

This means having a group compliance officer or head of compliance with overall responsibility for coordinating the management of compliance risk, as well as clear and independent responsibilities for compliance staff.

Transparency in Reporting Compliance Breaches

The BPNG has also emphasized the importance of transparency in reporting compliance breaches to the Board and relevant authorities. AIs are required to notify the BPNG in writing within seven working days of any material breach or breach that may pose a risk to financial stability.

Consequences of Non-Compliance

Failure to comply with these guidelines may result in sanctions, including varying the conditions of an AI’s licence under section 14 of the Banking (Financial Institutions) Act 2000.

Effective Date and Compliance Deadline

The effective date of this prudential standard is January 1, 2017, with full compliance required by December 31, 2018.

Conclusion

The BPNG has urged all AIs to address any compliance issues promptly and take corrective measures to prevent similar breaches in the future. Questions and enquiries relating to this prudential standard should be addressed to the Financial System Development Department at the Bank of Papua New Guinea.

Key Highlights

  • All Authorized Institutions (AIs) must establish an effective compliance function.
  • The compliance function must be permanent, effective, and independent.
  • AIs must develop policies and procedures to ensure compliance with relevant laws and regulations.
  • Transparency in reporting compliance breaches is crucial.
  • Failure to comply may result in sanctions, including varying licence conditions.

Contact

The Manager Financial System Development Department Financial System Supervision Group Bank of Papua New Guinea Post Office Box 121 Port Moresby Tel: 322 7200 Fax: 321 4549