Here is the converted article in markdown format:
Compliance Framework Needs Integration with Operational-Risk View
In today’s regulatory landscape, financial institutions are facing unprecedented challenges. To stay ahead of the curve, it is imperative that compliance functions are fully integrated with the bank’s operational-risk view of the world.
By integrating risk management, compliance can provide a comprehensive view of the enterprise’s portfolio of risks and visibility into systemic issues. This approach also reduces duplication of effort between business units and control functions, freeing up resources for more strategic initiatives.
To achieve this integration, financial institutions must take several practical steps:
- Develop a single inventory of operational and compliance risks
- Create standardized risk 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
Financial institutions are also rethinking their organizational structure to facilitate this integration. Some have migrated compliance functions to the risk organization, while others have elevated compliance to a standalone function.
Measuring Progress: Outcomes That Matter
As financial institutions embark on this transformation journey, it is essential to measure progress against desired outcomes. A ten-point scorecard can help banks assess their progress and identify areas for improvement.
Key indicators of success 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
- Compliance operating model with shared horizontal coverage
- Comprehensive inventory of laws, rules, and regulations
A 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 enjoy a distinctive source of competitive advantage, being able to deliver better service, reduce structural cost, and significantly de-risk their operations.
In conclusion, integrating the management of operational risks with compliance is crucial for financial institutions to stay ahead of the curve in today’s regulatory environment. By taking practical steps and measuring progress against desired outcomes, banks can maximize the impact of this transformation and reap the benefits of a more efficient and effective compliance function.