Bank Compliance Must Be Integrated with Operational Risk Management to Drive Efficiency and Competitiveness
In today’s complex regulatory landscape, banks must adopt a comprehensive approach to managing compliance risks to ensure they remain competitive and efficient. A key component of this strategy is integrating the management of operational and compliance risks into a single framework.
The Benefits of Integration
By doing so, banks can gain a holistic view of their risk portfolio, identify systemic issues, and avoid duplicative efforts. This integration also enables a more effective allocation of resources and facilitates the development of targeted risk-based controls.
Practical Steps to Achieve Integration
To achieve this level of integration, banks must take practical steps to combine their compliance and operational risk management functions. These actions include:
- Developing a single inventory of operational and compliance risks
- Creating standardized taxonomies for risk, processes, products, and controls
- Coordinating risk assessments, remediation, and reporting methodologies across all risk types
- Defining clear roles and responsibilities between risk and control functions
- Developing joint training and communication programs
- Establishing governance structures that span across risk and support functions
Changes to Organizational Structure
In addition, banks should consider changes to their organizational structure and placement of the compliance function. A recent trend among global banks is the migration of compliance to a risk organization, which reinforces the view of compliance as a risk similar to operational risk.
Measuring Progress: Outcomes That Matter
To ensure success in this transformation, it is essential to measure progress against desired outcomes. A 10-point scorecard can help banks assess their progress and identify areas for improvement. The key metrics include:
- Demonstrated focus on the role of compliance within the organization
- Integrated view of market risks with operational risk
- Clear tone from the top and strong risk culture
- Risk ownership and independent challenge by compliance
- Comprehensive inventory of all laws, rules, and regulations
- Use of quantitative metrics to measure compliance risk
The Future of Compliance: Competitive Advantage Through Integration
In conclusion, the integration of compliance and operational risk management is critical for banks seeking to stay ahead in today’s competitive landscape. By adopting this approach, banks can drive efficiency, reduce structural costs, and significantly de-risk their operations. Those that successfully make this shift will enjoy a distinctive source of competitive advantage and be better equipped to deliver great customer experiences while meeting the evolving demands of the regulatory environment.