Financial Crime World

Financial Institutions Must Review and Enhance Compliance Risk Management Annually

In an effort to strengthen their compliance risk management, financial institutions (FIs) must conduct regular reviews of their compliance programs at least annually. This review must take into account regulatory observations from onsite examinations, enforcement actions, internal assessments, feedback from internal audit, compliance reviews, and interactions with the Chief Compliance Officer (CCO).

Key Responsibilities of Financial Institutions

To ensure effective management of compliance risk, FIs are required to:

  • Approve the Appointment of a CCO: With sufficient experience, expertise, skills, and qualifications
  • Review and Enhance Their Compliance Programs Annually
  • Organize Their Compliance Function: In a manner that allows for effective entity-wide management of compliance risk
  • Provide Training: To business units on compliance issues relevant to their area

Chief Compliance Officer’s Role

The CCO plays a crucial role in ensuring the effectiveness of an FI’s compliance program. The CCO is responsible for:

  • Reporting Directly: To the Board of Directors or the Chief Executive Officer (CEO)
  • Maintaining a Matrix Reporting Structure: With country/regional heads for international branch operations
  • Conducting Independent Compliance Risk Assessments: Of key/critical functions where the likelihood of non-compliance events is high

Compliance Function Structure

FIs must organize their compliance function in a manner that allows for effective entity-wide management of compliance risk, including:

  • Centralized Compliance Department: At head office level and subject experts on various critical areas
  • Guidance to Business Units: On compliance issues relevant to their area
  • Regular Reviews and Assessments: To identify and manage compliance risks

Expectations

FIs are expected to have a comprehensive compliance risk policy that outlines:

  • Scope and Frequency of Compliance Risk Assessments
  • The compliance function should collect information from internal audit reports, but not rely solely on these reports. Instead, it should:
    • Conduct independent assessments
    • Coordinate with operational risk units for key/critical areas

By following these guidelines, FIs can enhance their compliance risk management and ensure that they are in compliance with regulatory requirements.