Financial Crime World

The Evolution of Compliance Functions in Banking

In recent years, the banking industry has seen a significant shift in the way compliance functions operate. Rising regulatory scrutiny has led to an increase in compliance headcount at banks, with many institutions expanding their teams to ensure they are adequately equipped to handle the demands of a rapidly changing regulatory environment.

Key Factors Driving Compliance Headcount

The size and complexity of a bank’s compliance function is influenced by several key factors:

  • Bank Size: Larger banks tend to require more comprehensive compliance programs, driving up headcount.
  • Geographic Footprint: Banks with global operations must maintain local compliance capabilities, increasing dedicated compliance staff.
  • Regulatory Scrutiny: Institutions subject to intense regulatory investigation or monitorship may experience a temporary decline in compliance staff after the end of the investigation.

The Fight Against Money Laundering and Terrorist Financing

One area where compliance functions are under significant pressure is in the fight against money laundering and terrorist financing. This effort accounts for the largest share of second-line compliance headcount, highlighting the importance of effective anti-money laundering (AML) and counter-terrorist financing (CTF) measures.

The Role of Digitization

Digitization presents a range of opportunities for the compliance function, including:

  • Efficiency Gains: Automation and advanced analytics can help streamline processes and reduce manual effort.
  • Improved Data Availability: Digital solutions can provide real-time data insights, enhancing the effectiveness of compliance programs.

Best Practices for Compliance Functions

To ensure their compliance functions remain effective and efficient, banks should:

  1. Regularly Pressure Test Their Programs
  2. Adopt Agile Ways of Working to Gains Speed and Efficiency While Maintaining Effectiveness and Independence

The Future of Compliance

Over the next three years, five key topics will shape the compliance landscape:

  • Efficiency: Banks must find ways to streamline their compliance processes while maintaining effectiveness.
  • Data Availability: The ability to access real-time data will become increasingly important in the fight against financial crime.
  • Regulatory Developments: Changes in regulations and standards will continue to impact the compliance function.
  • Availability of Qualified Employees: Banks must attract and retain skilled professionals to support their compliance programs.
  • Comprehensive Risk Assessment and Oversight: Effective risk management will be critical in ensuring the integrity of compliance functions.

Conclusion

In conclusion, the banking industry’s compliance landscape is evolving rapidly. To remain competitive and compliant, banks must address these issues now and adopt agile ways of working to ensure their compliance functions are fit for the future.