Integrating Compliance Framework with Operational-Risk View: A Key to Success
In today’s complex regulatory landscape, financial institutions are facing unprecedented challenges. To stay ahead of the curve, banks must integrate their compliance management into a comprehensive operational-risk framework.
The Benefits of Integration
According to industry experts, this integration offers tangible benefits. By having a single, integrated view of risks, banks can:
- Ensure that no material risk is left unattended
- Reduce the burden on both business units and control functions
- Enable a risk-based allocation of resources and management actions, allowing for more effective remediation and investment in cross-cutting controls
Practical Steps to Integration
To achieve this integration, financial institutions must take several practical steps:
Risk Management
- Develop a single inventory of operational and compliance risks
- Maintain standardized taxonomies for risk, process, product, and control
- Coordinate risk assessment, remediation, and reporting methodologies
Governance and Organization
- Define clear roles and responsibilities between risk and control functions
- Develop integrated training and communication programs
- Establish clear governance processes and structures
- Consistently involve senior stakeholders in determining action plans
Reorganizing for Success
Banks are reevaluating their organizational structure to better integrate compliance into the overall risk-management process. Some institutions have:
- Moved compliance reporting from legal to risk organizations
- Elevated compliance to a standalone function
Measuring Progress: Outcomes That Matter
To measure progress on this journey, experts recommend applying a ten-point scorecard that assesses key aspects of the compliance function’s transformation, including:
Key Performance Indicators (KPIs)
- Focus on the role of compliance 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
Conclusion
Regulatory compliance has undoubtedly presented challenges for banks. However, by implementing targeted changes to its operating model and processes, the compliance function can deliver a better quality of oversight while reducing costs and de-risking operations. Those institutions that successfully make this shift will enjoy a distinctive source of competitive advantage in the foreseeable future.