Banking Regulators Crack Down on Non-Compliance Risk
The banking industry is facing a growing concern: the risk of non-compliance with regulatory requirements. This risk can lead to significant financial losses and damage to a bank’s reputation. To mitigate this risk, banks must have effective policies and procedures in place.
New Risks, New Opportunities
New technological developments are creating new risks for financial institutions, but they also provide opportunities for banks to create new instruments for risk control. Advances in data analytics and artificial intelligence can help identify potential compliance issues before they become major problems.
Managing Non-Compliance Risk
To manage non-compliance risk, banks must have a dedicated team responsible for monitoring regulatory requirements and identifying areas of non-compliance. This team should be headed by the Head of Non-Compliance Risk Management and Control Department, who will report directly to the Board of Directors.
Responsibilities
- Maintaining knowledge about relevant regulatory requirements
- Updating bank policies and procedures
- Coordinating training for bank staff
- Monitoring customer complaints
- Implementing permanent programs for analyzing bank systems compliance
Coordination with Regulatory Institutions
Banks must also coordinate with banking supervision and regulation institutions through:
- External audits
- Regular meetings with local regulators
- Responsibility for corrective actions
Preventing Non-Compliance Risk
To prevent non-compliance risk, banks should have a comprehensive program in place that includes:
- Policies and procedures
- Training
- Monitoring
- Responding to customer complaints
The Case of Bulgaria
In Bulgaria, the risk of non-compliance is particularly prevalent. The bankruptcy of Corporate Commercial Bank highlighted the need for effective compliance measures. The country’s accession to the European banking union has brought new regulatory requirements, including the Capital Requirements Directive and Regulation.
Effective Compliance Measures
To ensure compliance, banks must implement procedures and internal controls to:
- Ensure transactions accountability
- Supervise daily operations
- Assess program performance
- Allocate responsibilities
- Respond to customer complaints
Training is Essential
Training is also essential to communicate policies and procedures to staff.
The Bulgarian Banking System
The Bulgarian banking system has shown its flexibility and efficiency in the face of global financial crises, but non-compliance risk remains a significant challenge. By implementing effective compliance measures, banks can mitigate this risk and maintain their reputation and financial stability.
Components of Non-Compliance Risk Prevention Programme (SMAART)
1. Systems
- Implementation of procedures and internal control to ensure transactions accountability in accordance with respective regulations and client requirements.
2. Monitoring
- Supervision process on a daily basis in connection with the operation of the Bank control system to ensure real-time performance of the system in accordance with the Bank program standards.
3. Assessment
- Periodic analysis of summarized records and operations to display operation violation and program disadvantage.
4. Accountability
- Allocation of responsibilities, authority, and accountability to direct staff to implement policies in order to comply with Bank regulations and notify the Bank management and Board of Directors about the program results.
5. Response
- Processing customer complaints
- Overcoming violations of regular requirements
- Control procedures modification
- Corrections of deficiencies in internal supervision
- Implementation of policies, procedures, their revision or renewal.
6. Training
- Communication in relationships of compliance with policy, procedures, directives, regulators’ requirements, information on products and services, including staff training and information.
By implementing these components, banks can effectively prevent non-compliance risk and maintain a strong reputation in the financial industry.