Page 37 - Banking Finance June 2019

ARTICLE

function to be effective, it must be supported by a healthy and codes of conduct applicable to banking activities"
compliance culture within the organization. (together called, "compliance laws, rules and standards").

Few very important guidelines have been mentioned here The compliance area is critically important in identifying,
(by RBI) but, there are significant differences among the evaluating, and addressing legal and reputational risks. A
banks with regard to their scale of operations, their risk wide compliance function helps the bank to look across
profiles and organizational structures. business lines and activities of the organization as a whole
and also see as how the activities in one area of the firm
Compliance and Compliance function in may affect the legal and reputational risks of other business
lines.
Banks
The Compliance Function has to ensure strict and complete
Responsibility of the Board and Senior
observance of all statutory provisions contained in various
legislations such as Banking Regulation Act, Reserve Bank Management
of India Act, Foreign Exchange Management Act, Prevention Compliance starts from the top management. It is important
of Money Laundering Act, income and other taxation laws that a corporate culture should emphasize the standards of
etc. a part from them, it has to be ensured that the honesty and integrity in the entire system. It should move
observance of other regulatory guidelines issued from time downward with the same seriousness as the board of
to time like standards and codes prescribed by BCSBI, IBA, directors and senior management is having. Top
FEDAI, FIMMDA etc. management must lead the entire organization by setting
examples with respect to compliance.
Bank's internal policies and fair practices code, compliance
laws, rules and standards are also to be followed like Responsibility of the Board of Directors- The Board is
managing conflicts of interest, treating customers fairly, and responsible for ensuring an appropriate compliance policy
ensuring the suitability of customer service. in the bank to manage compliance risk and also overseeing
its implementation. It has to ensure that compliance issues
Compliance laws, rules and standards have various sources are resolved effectively and expeditiously by senior
like primary legislation, rules and standards issued by management with the assistance of compliance officer and
legislators and supervisors, market conventions, codes of the staff. If necessary, the Board may delegate these tasks
practice promoted by industry associations, internal codes to the Audit Committee of the Board (ACB) or a specific
of conduct applicable to the staff members of the bank etc. Board level Committee constituted for the purpose, which
should review the compliance function on a quarterly basis
For this purpose, It is very important to have a well and it should be followed by a detailed annual review which
developed compliance function in the bank. As per RBI, is to be placed before the Board/ACB or the Board level
each bank is required to formulate a Compliance Function Committee. There should not be any conflict of interest. The
for the bank and It is the responsibility of the bank's
Compliance Officer to assist the top management in
managing effectively the compliance risks faced by the bank.

Compliance Risk and significance of

Compliance Function
The Basel Committee on Banking Supervision on Compliance
and the Compliance Function in Banks (April 2005) defines
Compliance risk as "the risk of legal or regulatory sanctions,
material financial loss, or loss of reputation a bank may suffer
as a result of its failure to comply with various laws,
regulations, rules, self-regulatory organization standards

BANKING FINANCE | JUNE | 2019 | 37