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Modern Compliance Framework Must Be Fully Integrated with Bank’s Operational-Risk View to Achieve True Efficiency
In today’s fast-paced financial landscape, regulatory compliance has become a critical component of any bank’s risk management strategy. However, many institutions are still struggling to integrate their compliance functions effectively with their operational-risk views, leading to inefficiencies and increased costs.
Integrating Operational and Compliance Risks Offers Tangible Benefits
According to industry experts, integrating the management of operational and compliance risks offers tangible benefits, including:
- A comprehensive view of the portfolio of risks
- Improved visibility into systemic issues
- Reduced burdens on both business and control functions
Achieving Integration through Practical Actions
To achieve this integration, banks must take practical actions to align their compliance functions with their overall risk-management governance. This includes:
- Developing a single integrated inventory of operational and compliance risks
- Coordinating risk assessment and remediation methodologies
- Defining clear roles and responsibilities between risk and control functions
Establishing Governance Processes and Structures
Banks should also establish clear governance processes and structures that span across risk and support functions, ensuring:
- Sufficient accountability, ownership, and involvement from all stakeholders
- Consistent involvement and timely alignment with senior compliance stakeholders in determining action plans and prioritizing issues
Recent Trend: Migrating Compliance Function to Risk Organization
Industry experts are noting a recent trend among global banks to migrate the compliance function to the risk organization, positioning it as a control rather than advisory function. This new structure is designed to facilitate an integrated view across all risk types and reinforce the view of compliance as a critical component of overall risk management.
Measuring Progress towards Integration
Measuring progress towards this goal is crucial, and industry experts recommend applying a scorecard with ten key principles to assess a bank’s transformation journey. These principles include:
- Demonstrated focus on the role of compliance
- Integrated views of market risks with operational risk
- Clear tone from the top
- Risk ownership and independent challenge by compliance
Achieving Integration for Competitive Advantage
By achieving this integration, banks can maximize the impact of their transformation efforts and deliver a better quality of oversight while increasing efficiency. Those that successfully make this shift will enjoy a distinctive source of competitive advantage in the foreseeable future, being able to:
- Deliver better service
- Reduce structural costs
- Significantly de-risk their operations
Key Takeaways
- Integration of compliance and operational-risk views is critical for achieving true efficiency
- Practical actions include developing a single integrated inventory of risks, coordinating risk assessment methodologies, and defining clear roles and responsibilities
- Recent trend among global banks is to migrate the compliance function to the risk organization
- Measuring progress towards integration is crucial, with industry experts recommending a scorecard with ten key principles
Contact
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