One of the most critical challenges for banking institutions operating in today’s demanding market is compliance. Non-compliance has severe consequences, and several major banks like JP Morgan Chase, Wells Fargo, and Goldman Sachs have attracted major fines. Therefore, banks cannot exercise any form of negligence when it comes to compliance, or they have to assume big losses.
What Do You Need to Know About Banking Compliance?
Originating from the term ‘to comply,’ compliance means following any rule, orientation, policy, or command. Hence, banking compliance refers to complying with laws, guidelines, and regulations, both internal and external.
It is a valuable support tool whose function is to detect, prevent and address any illegalities, deviations, and non-conformities in the company’s operations. The tool is used for managers and professionals responsible for security, information processing, data reliability, risk management, ethical conduct, etc.
Thanks to the evolving characteristics of the financial market and the introduction of new processes, banking compliance goes beyond detection or prevention. It plays an integral part in the advisory strategy of the financial institution.
Businesses can streamline and strengthen their decision-making process by complying with legislation, guidelines, and policies, especially regarding tactics for risk prevention or determining missions or values within the bank.
Evolution of Banking Compliance
While compliance models have always been in place in the banking sector, it is increasingly becoming commonplace to find banking institutions feeding money into their compliance departments. It is done to stay in sync with the volatile compliance environment. Also, banks need to optimize their protocols to remain compliant, which is a priority now more than before. Thanks to the end-to-end approach of Yubi Pools and security tools, it is possible to achieve compliance that keeps data safe.
Previously, the textbook compliance model was a straightforward stand-in to implement legal functions. It was typically maintained in an advisory capacity without focusing too much on its identification or risk management. With the introduction of process automation and widespread globalization and digitization, the need of the hour is compliance literacy. While several small-scale and regional banking enterprises, along with major banks, have some form of compliance framework, a significant number of questions are yet to be answered. The answers are critical to adhere to complete compliance and establish an efficient model.
What are the Responsibilities of a Compliance Department?
Any banking enterprise’s compliance department is responsible for ensuring the enterprise remains compliant. It has well-defined objectives to ensure the banking institution functions within rules and regulations. Therefore, it can preserve its reputation and integrity within the industry. The compliance department is tasked with the following:
- Prevent tax evasion
- Protect the bank against data theft
- Prevent money laundering and other illegal activities
- Safeguard banks against fines imposed by the government
- Stay far away from activities that are not in sync with the ethics and policies of the bank
- Identify and assess risk areas
Additionally, the department has to create a compliance policy and program. It is achieved through a collaborative effort with senior management. The compliance department is expected to implement the general policy, and the management is tasked with establishing a culture of compliance across the banking enterprise. This is achieved through proactive communication regarding the compliance policy to all personnel, standardizing processes, and disclosing ethical conduct as the culture of the enterprise.
Standardizing processes is particularly important because it takes into account effective risk management. The enterprise enhances its efficiency with a standard process for daily operations like addressing risks, doing inventory, managing problems, and providing resolutions.
Furthermore, the compliance department ensures that consumers interact with the banking institution according to the regulations. If any acts are committed outside the purview of the rules and regulations of the bank, strict actions might be taken to rectify those actions.
Implementing Banking Compliance
Banking compliance is implemented by changing the overall culture of the banking enterprise. The entire enterprise adopts safer and tighter controls. The senior management is responsible for ensuring compliance is maintained across the enterprise. The responsibilities of the senior management include:
- Disclosing ethical conduct as the culture of the bank
- Approving compliance policies and ensuring they are per regulations and legislation
- Communication to all staff, including service providers and partners, about the enterprise’s compliance policy
Management of processes and standardization are other critical points for the success of banking compliance. All personnel in the banking institution must follow the same standard for making inventories, addressing risks, and addressing problems. It will help to make all the procedures more effective, and the obstacles will be overcome easily. However, for the correct compliance policy implementation, the strategy must be performed successfully, and everyone, including the staff, senior management, and customers, must be fully knowledgeable and engaged in compliance.
The Banking Compliance Policy
The banking compliance policy refers to a set of processes that include the rules to be followed, the definition of personnel in charge and responsibilities, and the mode of communication between senior management and staff. A successful compliance policy for banking institutions must consider every small detail before passing it as a policy. Hence, the policy needs to be well-structured and must consider the enterprise’s size, the operation area’s risks, and the complexity of the received, treated, and processed data.
The Execution and Transparency of Banking Compliance
Once the responsibilities have been defined, and the Yubi Pools tools for complying and monitoring banking compliance are chosen, it is important to ensure all the institution’s processes are compliant. Hence, it is crucial to implement a process that signals a change in the institution’s procedures.
Institutions must also define the technological tools that help quantitatively measure the risks. Risk level markers must be developed, and the scenarios must be thoroughly assessed. To ensure that transparency is maintained regarding all the policies, guidelines, strategies, and challenges, it is highly recommended that banks document all the procedures. This will ensure that all personnel have access to the material. It will make it easier for the staff to identify inconsistencies and nonconformities with information. Also, they can efficiently guide customers to solve their issues.
What are the Best Ways to Manage Compliance Costs?
Compliance regulations are constantly changing. Therefore, it is not wise to respond by creating new databases or protocols to adhere to compliance. It is recommended that banks add to their existing processes and encourage workflow enhancements. These must integrate easily so that the need to divert capital can be eliminated and institutions can keep up with changing regulatory reforms. Also, the costs can be reduced by leveraging the power of automation and technology. Banking institutions can adhere to compliance regulations by signing up on the Yubi Pools platform. From achieving security infrastructure to maintaining compliance, the platform assists through the way.
Integrate with Risk Management Governance
The practice of risk management governance is related to establishing a streamlined risk control procedure and encouraging a risk-aware culture throughout the institution. Standardized procedures are critical, and everyone must be held accountable, along with the compliance department. Communication must start at the highest management level and be carried out by the maintenance staff.
The Bottom Line
Banking compliance is ever-evolving, and it is crucial for banking enterprises to stay updated with the changes. Non-compliance will result in attracting an exorbitant fee.
Therefore, banking institutions need to form a compliance department and make sure they are keeping up with the changes in regulations. Also, it is key to comprehend existing processes before introducing company-wide new regulations to stay up-to-date. Hopefully, this guide will teach you what you need to know about bank compliance. For more information, the Yubi Pool feature on the Yubi platform provides the necessary details.