It is critical that every bank, non-banking financial institution and even most large corporates have a robust compliance framework. There needs to be a structure and guidelines within the compliance department to formulate policies which the business will need to follow, and to successfully implement the regulations issued by regulators. A comprehensive function needs to start with effective governance, and this means reporting lines of the compliance head being independent, with a seat at the top table. The compliance function:
identifies risks and helps business to incorporate controls to manage these risks;
monitors the implementation through reviews and monitoring tools on a periodic basis;
examines the management information for red flags; and
gives advice to business to mitigate risks.
Another key responsibility within the framework is the regulatory piece which includes liaison with regulators, helping implement new regulations, regulatory change management and managing regulatory inspections.
An effective compliance framework will also include compliance training and helping guide the business on conduct and culture issues. Today, with tech-based solutions, screening systems and the use of AI, the compliance function has powerful tools to monitor the business. Compliance sits within the second line of defence in an organisation, which means that it performs a very critical oversight role, giving comfort to various stakeholders including the regulators.
In the coming weeks, I will unpick some of the areas I've spoken about above.
How well run is your compliance department? Do you have an effective framework? How can you enhance your second line responsibilities?
SYG Consulting can help you to build a robust function or simply perform a quick check to assess how you can be more effective in supporting your organisation.
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