Banks Must Evolve Compliance Function to Stay Ahead of Regulatory Landscape
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A new era of regulatory compliance has arrived, demanding that banks transform their compliance functions to stay ahead of the curve. The landscape is increasingly complex, with changing regulations, rising costs, and the need for greater efficiency.
Key Principles for Success
To address this challenge, financial institutions are rethinking their compliance operating models and processes. A recent report highlights three key principles for success:
1. Integrate Compliance into Risk Management
Banks must recognize that compliance is a risk similar to operational risk and integrate it into the overall risk management framework.
2. Streamline Processes and Reduce Burden on Business
Financial institutions can achieve greater efficiency by streamlining processes, eliminating duplicative assessments, and reducing the burden on business units.
3. Focus on Outcomes that Matter
Banks should prioritize outcomes such as:
- Demonstrating a clear tone from the top
- Promoting a strong risk culture
- Ensuring compliance ownership and independent challenge
Practical Actions to Implement Principles
To implement these principles, banks can take several practical actions:
- Develop a single integrated inventory of operational and compliance risks
- Standardize risk, process, product, and control taxonomies
- Coordinate risk assessment, remediation, and reporting methodologies and calendars
- Define clear roles and responsibilities between risk and control functions
Examples of Transformation
Some financial institutions are already taking bold steps to transform their compliance functions. For example:
- Several global banks have migrated their compliance functions to the risk organization, positioning it as a control function rather than advisory.
Measuring Progress
To measure progress on this journey, a 10-point scorecard can be applied, assessing factors such as:
- Demonstrated focus on compliance
- Integrated view of market and operational risks
- Clear tone from the top
- Adequate talent and capabilities
Benefits of Transformation
Banks that successfully transform their compliance functions will enjoy a competitive advantage in the foreseeable future, delivering better service, reducing structural costs, and significantly de-risking their operations.