Compliance Function Transforms to Stay Ahead of Evolving Regulatory Environment

As regulators continue to impose stricter rules and regulations on banks, financial institutions are facing increasing pressure to optimize their compliance functions. To stay ahead of the curve, many institutions are undergoing a transformative shift in the way they approach compliance.

The Importance of Transformation

According to a recent report, transforming the compliance function is critical for banks seeking to deliver better oversight while reducing costs and minimizing operational risks. By implementing targeted changes to their compliance functions, financial institutions can stay ahead of the evolving regulatory environment and achieve greater efficiency and effectiveness.

Key Principles Drive Transformation

Three key principles underpin the transformation of the compliance function:

Integration with Risk Management

Compliance must be fully integrated into risk management processes, leveraging shared resources and expertise to ensure a comprehensive view of operational and market risks.

Focus on Outcomes

Compliance teams must shift their focus from mere adherence to rules and regulations to achieving specific outcomes that matter, such as enhanced customer experience and reduced risk exposure.

Operational Efficiency

Compliance functions must prioritize efficiency and effectiveness, leveraging technology and process improvements to reduce costs and minimize bureaucratic burdens.

Practical Actions Support Transformation

To achieve these principles, financial institutions can take the following practical actions:

• Develop a single integrated inventory of operational and compliance risks
• Standardize risk, process, product, and control taxonomies
• Coordinate risk assessment, remediation, and reporting methodologies and calendars
• Define clear roles and responsibilities between risk and control functions

Measuring Progress: A 10-Point Scorecard

To measure progress on this journey, a 10-point scorecard can be applied to assess the effectiveness of compliance function transformation. The scorecard evaluates key areas such as:

1. Demonstrated focus on compliance
2. Integrated view of risks
3. Clear tone from the top
4. Evidence of senior-management involvement
5. Effective communication and training programs
6. Compliance risk assessment and monitoring
7. Remediation and reporting processes
8. Technology and process improvements
9. Stakeholder engagement and collaboration
10. Continuous learning and improvement culture

Conclusion

The transformation of the compliance function is essential for financial institutions seeking to stay ahead of the curve in an evolving regulatory environment. By adopting new operating models and processes that prioritize efficiency, effectiveness, and risk management, banks can deliver better oversight while reducing costs and minimizing operational risks. As regulators continue to impose stricter rules and regulations, institutions that successfully transform their compliance functions will enjoy a distinctive source of competitive advantage.