Compliance Integration Crucial for Financial Institutions

In today’s complex regulatory landscape, financial institutions must ensure that compliance is fully integrated with their operational-risk view of the world. This integration offers tangible benefits, including a comprehensive view of risk portfolios, reduced burden on business and control functions, and facilitated resource allocation.

Achieving Integration

To achieve this integration, banks can take practical actions such as:

• Developing a single inventory of operational and compliance risks
• Standardizing taxonomies (risk, process, product, and control)
• Coordinating risk assessment and remediation methodologies
• Defining clear roles and responsibilities between risk and control functions
• Developing integrated training and communication programs
• Establishing clear governance processes and structures
• Consistently involving senior compliance stakeholders in action plans

Reorganizing the Compliance Function

Financial institutions are also reevaluating their organizational structure to ensure effective integration. A recent trend is migrating the compliance function to a risk organization, treating it as a control rather than advisory function.

Measuring Progress

To measure progress on this journey, banks can apply a ten-point scorecard that evaluates:

• Focus on compliance role and stature within the organization
• Integrated view of market risks with operational risk
• Evidence of senior-management involvement

Benefits of Effective Compliance Integration

Banks that successfully integrate their compliance functions will enjoy a distinctive source of competitive advantage, delivering better service, reducing structural costs, and de-risking operations. By implementing targeted changes to its operating model and processes, the compliance function can deliver a better quality of oversight while increasing efficiency.

Audit’s Role

Audit should play an important role in measuring progress against desired outcomes, providing an independent view of program status and effectiveness with respect to commonly agreed-upon transformation objectives.

Conclusion

Integrating compliance into a financial institution’s operational-risk view is crucial for effective risk management. By taking practical actions and reorganizing the compliance function, banks can deliver better service, reduce costs, and de-risk operations.