Compliance Integration Key to Bank Success
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As the regulatory landscape continues to evolve, banks must adapt to remain competitive and mitigate risk. One critical step towards achieving this goal is integrating compliance into the overall risk management framework.
Benefits of Integrated Compliance Framework
A fully integrated compliance framework can provide numerous benefits, including:
- A comprehensive view of operational risks
- Reduced burden on business units and control functions
- Targeted allocation of resources for risk remediation and control investments
To achieve this integration, banks must take practical actions such as:
Practical Actions for Integration
- Developing a single inventory of operational and compliance risks
- Establishing standardized taxonomies
- Coordinating risk assessment methodologies
- Clear roles and responsibilities between risk and control functions
It is also essential to develop integrated training programs, establish clear governance processes and structures, and involve senior compliance stakeholders in determining action plans and prioritization of issues.
Organizational Changes for Integration
Some financial institutions are even considering changes to their organizational structure to facilitate this integration. For example:
- Moving the compliance function to report directly to the risk organization
- Elevating it to a stand-alone function with clear separation from business units
Measuring Progress
To ensure successful transformation, banks must measure progress against desired outcomes using a 10-point scorecard that assesses factors such as:
- Demonstrated focus on compliance
- Integrated view of market and operational risks
- Evidence of senior-management involvement and active board oversight
Banks with a low score may require significant transformation efforts, while those that successfully integrate their compliance function will enjoy a distinctive competitive advantage in the future.
Opportunity for Competitive Advantage
By implementing targeted changes to its operating model and processes, the compliance function can deliver better quality oversight while increasing efficiency. Banks that successfully make this shift will be able to:
- Reduce structural costs
- De-risk operations
- Deliver better service to customers
Conclusion
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Integrating compliance into the overall risk management framework is crucial for banks seeking to remain competitive in today’s regulatory environment. By taking practical actions and measuring progress against desired outcomes, banks can maximize the impact of this transformation and achieve a distinctive source of competitive advantage.