FI’s Overall Management of Compliance Risk Under Scrutiny
In today’s increasingly complex regulatory environment, Financial Institutions (FIs) are required to conduct an annual review of their overall management of compliance risk. This review should be based on observations from onsite examinations, enforcement actions, internal assessments, and feedback from internal audit, compliance reviews, as well as interactions with the Chief Compliance Officer (CCO).
Ensuring Effective CCO Management
- The review process should ensure that the CCO has the necessary experience, expertise, skills, and qualifications to perform their functions effectively.
- FIs must also approve any disciplinary action or termination of the CCO.
The Critical Role of the CCO
The CCO plays a crucial role in ensuring that compliance risk is managed effectively across the organization. As such, FIs are required to maintain:
Centralized Compliance Department
- A centralized compliance department at head office level
- Branch/region-level compliance structures as needed
Independent Compliance Risk Assessments
- Conduct independent compliance risk assessments of key/critical functions where the likelihood of non-compliance events is high or has a significant impact on the FI’s compliance risk profile
- Collect information from internal audit departments regarding instances of non-compliance observed during audits
Subject Experts: A Key Component of Compliance Risk Management
FIs are encouraged to have subject experts in various critical areas, including:
Areas of Expertise
- Risk management
- Credit operations
- Product compliance
- Customer service
- International trade
- Outsourcing
- Corporate governance
- Financial disclosures
- Business continuity
- Information technology
- General banking operations
- Anti-money laundering/combating the financing of terrorism (AML/CFT)
These experts can provide guidance and training to business units on compliance issues relevant to their area, and play a key role in identifying and managing compliance risk.
Regular Reviews and Assessments: The Key to Compliance Risk Management Success
FIs are required to conduct regular reviews and assessments of their compliance risk management processes to ensure that they are effective and robust. This includes:
Regular Reviews and Assessments
- Conducting independent compliance risk assessments of key/critical functions
- Reviewing and assessing the effectiveness of internal audit and operational risk units
By implementing these measures, FIs can ensure that they have a robust compliance risk management framework in place, which will help them to mitigate the risk of non-compliance and maintain a strong reputation in the financial industry.