Compliance Framework Must Be Fully Integrated with Operational-Risk View
In today’s complex regulatory landscape, banks face unprecedented challenges in managing compliance risks. A single, integrated framework that combines operational risk management with compliance is essential to ensure effective oversight and minimize the risk of non-compliance.
Benefits of Integration
By integrating compliance into the overall risk-management governance structure, banks can reap tangible benefits, including:
- A comprehensive view of portfolio risks
- Reduced duplicative efforts by business units and control functions
- A more targeted allocation of resources for risk remediation and control investments
Practical Actions to Achieve Integration
To achieve this integration, practical actions can be taken:
- Develop a single inventory of operational and compliance risks
- Standardize risk, process, product, and control taxonomies
- Coordinate risk assessment, remediation, and reporting methodologies
- Define clear roles and responsibilities between risk and control functions
- Develop integrated training and communication programs
- Establish clear governance processes and structures
Reorganizing the Compliance Function
Financial institutions are rethinking their organizational structure to place compliance within the risk organization. This trend is evident in global banks that have previously had compliance reporting to legal.
Measuring Progress: Outcomes That Matter
To ensure a successful transformation of the compliance function, it is essential to measure progress against desired outcomes. A scorecard with ten key indicators can help assess progress:
- Demonstrated focus on compliance and its stature 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
- Compliance operating model with shared horizontal coverage
- Comprehensive inventory of laws, rules, and regulations
- Use of quantitative metrics and qualitative risk markers
- Compliance management information systems providing an integrated view of risks
- Evidence of first-line defense taking action on compliance issues
- Adequate talent and capabilities to tackle key risk areas
Audit’s Role in Measuring Progress
Banks can maximize the impact of their transformation by rigorously measuring progress against desired outcomes. Audit should play a crucial role in this process, providing an independent view of program status and effectiveness.
The Future of Compliance
By implementing targeted changes to its operating model and processes, the compliance function can deliver better oversight while increasing efficiency. Banks that successfully make this shift will enjoy a competitive advantage, delivering better service, reducing structural costs, and de-risking their operations.
As regulatory requirements continue to evolve, it is essential for banks to prioritize the integration of compliance into their operational-risk view. By doing so, they can mitigate risk, reduce costs, and ultimately provide better services to customers.