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Compliance Function Gets Ahead of Regulatory Curve
As regulatory compliance continues to evolve, banks are under pressure to adapt their operating models and processes to stay ahead of the curve. According to a new report by McKinsey & Company, successful implementation of targeted changes can lead to a better quality of oversight while increasing efficiency.
The Importance of Compliance Function
The compliance function has become increasingly important in recent years, with regulatory bodies imposing stricter regulations on financial institutions. However, this increased scrutiny has also led to an increase in cost and complexity for banks, making it more challenging to deliver exceptional customer experiences.
Key Principles for Transformation
McKinsey’s report highlights the need for banks to adopt a multifaceted approach to transformation, focusing on three key principles:
- Demonstrated focus on compliance
- Integrated view of market risks with operational risk
- Clear tone from the top with strong risk culture
Measuring Progress
The report also provides a 10-point scorecard to measure progress against desired outcomes, including:
- Demonstrating compliance ownership and independent challenge
- Integrating market risks with operational risk
- Using quantitative metrics to measure compliance risk
By applying this scorecard, banks can identify areas for improvement and track progress against their transformation objectives.
Archetypes of Compliance Organizations
The study identifies several common archetypes for compliance organizations, including:
- Those led by legal functions
- Those led by risk functions
- Standalone functions
- Risk-led organizations (where compliance is viewed as a risk similar to operational risk)
Conclusion
The compliance function has a critical role to play in today’s regulatory landscape. By implementing targeted changes to its operating model and processes, banks can deliver better oversight while increasing efficiency. Those that successfully transform their compliance functions will enjoy a distinctive source of competitive advantage in the future.
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