How effective are your bank compliance processes and procedures? Do you have a systematic approach to compliance?
The banking & financial services industry is a highly regulated industry in addition to being one of the most data driven of industries. The regulatory atmosphere that banks and financial institutions operate within requires storing and analyzing a large amount and numerous years of transaction data.
Banks remain exposed to many compliance issues because of the growing regulatory pressure, big data security, levels of enforcement, ineffective corrective actions, regulatory risk or to put it more straightforwardly – non-compliance risk. The compliance workforce is now facing a huge undertaking – with the demands of the current and future regulations, how do they ensure compliance?
Regulatory reform is leading the way for change among the banking industry and how financial institutions are required to comply with regulations. With the passing of Dodd Frank and the coming much needed apprises regulators are enforced to look for a more proactive approach to compliance and implementation of a fully robust program. The problem is compliance and audit workforces are still relying on manual copies of regulations and excel spreadsheets to implement compliance programs which pose risks of inaccurate, incomplete record keeping that can result in fines and regulatory trouble.
In addition, banks and financial institutions aggregate a lot of sensitive and confidential data that if exposed to plebeian hordes of hackers will result in a huge security risk. In the end all these factors can have a lasting impact on operations, and all these different risk factors could impact your bottom line.
Furthermore, inaccurate information can lead to issues which can result in misinformed business decisions. Data management is key in such examples as payables, receivables and reporting. It is vital to ensure your data is correct amongst the constant changes. Additionally, important transaction recordkeeping (who, what, when, where) and due diligence must be recorded and the evidence must be immutable.
Unfortunately, this “manual” approach to compliance can prevent the top management, auditors and compliance officers from accurately understanding the general state of compliance of the organization against the many standards and regulations applicable to their business.
The answer to these challenges is to adopt a risk-based, transparent, dynamic and holistic approach to compliance that integrates, automates and streamlines your compliance management system. Your compliance workforce should be equipped with the right tools to address the challenges they are facing. Break down the silos and have a centralized library of regulations that allows you to navigate through regulations and standards and determine which regulations and standards apply to your type of organization which is the first step to plan for audit and compliance.
Most regulatory agencies are clear about what they are looking for during the auditing process, but what they are not clear about is the processes or systems to achieve compliance.
In other words, what should be the components of a compliance management system (CMS) which helps to identify why, what, how, where and who will achieve compliance.
They typically don’t regulate the “how”, i.e. “the process”, part in most cases, but they definitely regulate the “what” part, in terms of the regulation that you want to be in compliance with. Although, the compliance management system is vital to the prevention of violations of federal consumer financial laws and the resulting harm to the consumers, I don’t think you should only implement a compliance management system just because of regulatory pressures, but a proactive approach to building a compliance management system can help establish a culture of operational excellence and it should be considered an integral part of any organization.
Although many regulatory agencies do not govern and regulate the components of a compliance management system, the FDIC, the Federal Reserve and the Consumer Financial Protection Bureau (CFPB) have all provided guidelines and emphasized the importance of having a compliance management system. The CFPB does not require you to structure a CMS in any particular manner, but they have set expectations on what objectives the compliance management system should be able to achieve and activities it should roll out. These guidelines are not only for banking institutions but also for the non-banking institutions that they supervise.
Components of the compliance management system should include:
- Ability to identify requirements
- Ability to identify regulations
- Ability to identify standards
- Ability to establish compliance responsibilities
- A compliance program
- A consumer complaint management program
- An independent compliance audit
- Risk management
- Ability to communicate compliance responsibilities to employees
- Board of directors and management oversight
- Ability to put in business process to meet the regulatory/legal requirements as well as the internal corporate requirements
- Process to take corrective and preventive action
- Ability to assign roles and responsibilities
- Ability to assign individuals tasks and corresponding processes to take corrective and preventive action
If “the why”, “the what”, “the who” and “the how” activities are integrated and well-coordinated, you should be able to successful at assigning the “the who” and managing your compliance obligations and mitigating risks.
It’s been my observation that creating an effective compliance management system gets significantly complicated if the organization is complex with employees in tens of thousands, with multiple offices in multiple states subject to federal and local laws. As a result, the risks get higher and automation may be the optimal solution to help mitigate these risks.
In the end, regulatory pressures are creating more challenges for the banks and financial institutions and driving them to leverage technology and embed some sort of automation within their compliance management system. With limited resources within the compliance departments, they can barely keep up with the day to day compliance with existing and new regulations.
Building a compliance management system may appear to be a huge undertaking in the forefront of your compliance management system. However, by adopting a risk-based, transparent, dynamic and holistic approach to compliance and including integration and automation in your compliance process you will in turn streamline your compliance management system, resulting in a better and more robust compliance workforce, equipped with the right tools to address the challenges they are facing and breaking down the silos allowing you to navigate through regulations, requirements and standards with ease.