Banks Must Integrate Compliance Framework with Operational-Risk View
In today’s regulatory landscape, a comprehensive view of risk management is crucial for banks to thrive. A single, integrated framework that combines operational-risk management with compliance ensures a holistic approach to risk assessment and mitigation.
Benefits of Integration
By integrating these two critical functions, financial institutions can reap tangible benefits:
- Gain a complete understanding of their risk portfolio and visibility into systemic issues across products and processes
- Reduce the burden on both business units and control functions by eliminating duplicative efforts
- Enable a risk-based allocation of resources and management actions to address compliance risks
Practical Steps for Integration
To achieve this integration, banks must take practical steps:
- Develop a single inventory of operational and compliance risks
- Create standardized taxonomies for risk, processes, products, and controls
- Coordinate risk assessments, remediation, and reporting methodologies across functions
- Define clear roles and responsibilities between risk and control functions
- Develop integrated training and communication programs
- Establish clear governance processes and structures
Moreover, financial institutions must consider changes to their organizational structure. Some banks have successfully migrated compliance to the risk organization, while others have elevated it to a standalone function.
Measuring Progress: A 10-Point Scorecard
To gauge progress on this journey, we recommend a 10-point scorecard that assesses key aspects of compliance integration:
- Focus on compliance’s role within the organization
- Integrated view of market and operational risks
- 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 to measure compliance risk
- Integration of management information systems
- Evidence of first-line defense action and ownership
- Adequate talent and capabilities
By measuring progress against these requirements, banks can identify areas for improvement and maximize the impact of their transformation.
A New Era of Compliance
The regulatory environment is evolving rapidly, and banks that successfully integrate compliance with operational-risk management will enjoy a competitive advantage. By delivering better oversight, increasing efficiency, and de-risking operations, they can thrive in an increasingly complex landscape.
Audit plays a critical role in this process, providing an independent view of program status and effectiveness against agreed-upon transformation objectives. Banks that take a proactive approach to compliance integration will be well-positioned to navigate the challenges ahead and emerge stronger than ever.