Compliance Integration Key to Bank Success

In today’s rapidly evolving regulatory environment, financial institutions must integrate their compliance management into their operational-risk view of the world to achieve tangible benefits.

The Importance of Integration

By integrating compliance risk with operational risk, banks can gain a comprehensive view of their portfolio of risks and avoid systemic issues. This approach also reduces the burden on business units and control functions, streamlining risk assessments and remediation activities.

Practical Actions for Integration

To achieve this integration, practical actions include:

Developing a Single Inventory: Create a single inventory of operational and compliance risks to gain a comprehensive view of your portfolio.
Establishing Standardized Taxonomies: Develop standardized risk taxonomies to ensure consistency across the organization.
Coordinating Risk Assessment and Reporting Methodologies: Coordinate risk assessment and reporting methodologies to streamline risk assessments and remediation activities.
Defining Clear Roles and Responsibilities: Define clear roles and responsibilities between risk and control functions to avoid confusion and inefficiencies.
Implementing Integrated Training and Communication Programs: Implement integrated training and communication programs to ensure all stakeholders are aligned with the new approach.
Establishing Governance Processes and Structures: Establish governance processes and structures that span across risk and support functions to ensure accountability.

Reorganizing Compliance Functions

Financial institutions are also reorganizing their compliance functions to better align with operational-risk management. Some banks have migrated compliance to the risk organization, while others have elevated it to a stand-alone function.

Measuring Progress

To gauge success, financial institutions can use a 10-point scorecard to measure progress on this journey. Key indicators include:

Demonstrated Focus: Demonstrated focus on the role of compliance within the organization.
Integrated View: Integrated view of market risks with operational risk.
Clear Tone from the Top: Clear tone from the top and strong risk culture.
Risk Ownership: Risk ownership and independent challenge by compliance.
Comprehensive Inventory: Comprehensive inventory of laws, rules, and regulations.
Quantitative Metrics: Use of quantitative metrics to measure compliance risk.
Evidence of Action: Evidence of first-line defense taking action on compliance issues.

Outcomes That Matter

By implementing targeted changes to its operating model and processes, the compliance function can deliver better oversight while increasing efficiency. Financial institutions that make this shift will be able to:

Deliver Better Service: Deliver better service to customers and stakeholders.
Reduce Structural Cost: Reduce structural cost by streamlining operations.
Significantly De-Risk Operations: Significantly de-risk their operations.

In today’s challenging regulatory environment, financial institutions must prioritize compliance integration to achieve these outcomes.