Financial Crime World

Compliance Functions in Banks: Current State and Future Directions

Introduction

The banking industry is subject to a multitude of regulations, requiring financial institutions to maintain robust compliance functions. This article discusses the current state of compliance functions in banks, highlighting key points that drive their size, regulatory focus, risk areas, digitization opportunities, and future directions.

Compliance Headcount: Size Matters

The size of a bank’s compliance function is directly tied to its:

  • Size: Larger banks require more dedicated compliance headcount due to the complexity of their operations.
  • Geographic footprint: Banks with global footprints need local compliance capability, driving up dedicated compliance headcount.

Regulatory Focus: Navigating Complex Rules

Banks must navigate a web of regulations, including:

  • Money laundering and terrorist financing: Compliance programs must be robust to prevent these illicit activities.
  • Sanctions and embargoes: Banks must ensure they do not inadvertently facilitate prohibited transactions.
  • Conduct risk: Compliance functions must mitigate the risk of poor customer treatment or unfair business practices.

Digitization Opportunities: Streamlining Processes

Compliance functions can benefit from digitization, transforming end-to-end people-intensive processes like:

  • Know Your Customer (KYC): Digital KYC solutions can improve accuracy and reduce costs.
  • Other areas: Digitization can also be applied to other compliance processes, such as transaction monitoring and reporting.

Future Directions: Pressure Testing Compliance Programs

To ensure their compliance functions remain fit for the future, banks should:

  • Pressure test programs regularly: Identify areas of improvement and address them promptly.
  • Introduce agile ways of working: Encourage collaboration and flexibility to respond quickly to changing regulatory requirements.
  • Stay ahead of the industry curve: Address hot topics like efficiency, data availability, regulatory requirements, qualified employees, and comprehensive risk assessment.