Page 28 - Banking Finance December 2022

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subjected to sanctions, penalties, and possible financial cases remain pending against the it in different fora. The
losses. organisation hardly questions its employees even in those
cases wherein they have committed some mistakes which
The act of not complying with provisions carries with it the might have ended up costing the bank and its customers.
risk of legal or regulatory sanctions, financial loss, or loss to
reputation a bank may suffer due to perpetration of fraud In both of these organisations, the staff is almost equally
or bad publicity as a result of its failure to comply with laws, qualified, efficient and selected through a standard
regulations, rules, related self-regulatory organization procedure. The terms of employment, salary and other
standards, and codes of conduct applicable to its banking conditions are also similar to each other. Despite all this,
activities. A casual and lax approach towards the concept compliance remains a big challenge for the organisation B
of compliances and due procedures leads to compliance risk. whereas organisation A maintains a model work
On the other hand, a strong compliance approach/ culture environment and ensures active compliance with rules and
minimizes the instances of fraud and other errors in procedures.
paperwork that usually arise in financial transactions.
This gives rise to other questions as to why there is so much
Regulators can guide the banks, impose penalties, and put difference in their approaches despite not much in their
sanctions on the banks for non-compliance. The onus of structures? Why is it that the compliance culture is
ensuring compliance with the due procedures and other immaculate in one organisation and non-existent in the
regulations laid down by the RBI and other regulators on other? Why are so many Banks lacking in compliance culture?
the Bank. It is the Bank that stands to lose its reputation or
wealth if frauds are perpetrated at its expense or if the bank It is imperative to understand that building a culture makes
is being used for engaging in nefarious activities. For this, a big difference among the organisation, small or big, even
the bank needs to inculcate and strengthen a culture of a country. Here we can take the example of Japan, a country
compliance in its people and processes. where work culture and cleanliness are inculcated in the
public from an early age. The education system and the
A strong culture of compliance is regarded as the key to society actively aim to inculcate good values in the children
ensuring compliances in the true sense. The importance of so that they grow up into responsible adults.
compliance in a work culture will be underscored by the
illustration below. Here we compare two organisations ‘A’ Strengthening compliance in any organisation is of
and ‘B’. A’s employees and management understand the paramount importance. Every organisation should strive
need for compliance with the organization’s policy, hard to inculcate such a healthy and effective compliance
government policies, rules, and everything that needs to be culture in itself through training and various forms of
complied with. They also comply willingly with these policies, communication with the staff.
norms, and rules. The staff is not necessarily required by the
organisation to do this, nor is it compelled to engage in this
in any manner. The employees have themselves recognised
the benefits of adopting a compliance culture and have
proactively adopted them. The organisation is proud of its
employees for the healthy work environment which they
have created and the processes and procedures which they
have adopted.

On the other hand, organisation B’s employees are the
complete opposite and do not understand the need for
compliance. They do not take any interest in compliance
with the rules. The organisation has itself been arraigned
and penalized by the government and the regulators on
multiple occasions in the recent past. Furthermore, several

28 | 2022 | DECEMBER | BANKING FINANCE