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Compliance Risks Associated with AI’s Business Activities

The Bank of Papua New Guinea (BPNG) has introduced new prudential standards aimed at ensuring the compliance of Artificial Intelligence (AI) institutions with regulatory requirements. The standards focus on the compliance risks associated with AI’s business activities, including:

  • Development of new products and business practices
  • Acquisitions
  • Information technology system changes
  • Reorganization
  • Customer relationships

Compliance Function Requirements

The standards require that AI institutions have a permanent, effective, and independent compliance function. This includes:

  • Having a group compliance officer or head of compliance with overall responsibility for coordinating the management of compliance risk.
  • Clear and independent responsibilities for compliance and access to information and personnel necessary to carry out its duties.

Head of Compliance

The standards require that an executive or senior staff member be appointed as the Chief Compliance Officer (or equivalent) with overall responsibility for coordinating the identification and management of compliance risk. The Chief Compliance Officer is expected to be the principal contact point for BPNG on regulatory matters.

Notification Requirements

AI institutions must notify BPNG in writing within seven working days when:

  • The Chief Compliance Officer takes up or leaves their position
  • Any material compliance breaches that are escalated to the Board or management committee

Reporting

As part of its annual attestation to BPNG, the Chairman of the AI’s Board with the approval of all directors must provide assurances regarding compliance with laws, regulations, prudential standards, codes, rules, and similar requirements for each jurisdiction in which it operates.

Corrective Measures and Sanctions

If BPNG is not satisfied with an AI institution’s systems and procedures for compliance risk management, it may:

  • Vary the conditions of its licence
  • Require immediate remediation of issues
  • Suspend or limit certain business activities
  • Prohibit certain transactions
  • Require additional staff or third-party support

Effective Date

The prudential standard comes into effect on January 1, 2017, with full compliance required by December 31, 2018. Questions and enquiries relating to the standard should be addressed to the Financial System Development Department of the Bank of Papua New Guinea.

BPNG’s efforts to strengthen compliance risk management in AI institutions aim to ensure that these entities operate in a safe and sound manner, while also maintaining public confidence in the financial system.