Page 38 - Banking Finance June 2019

ARTICLE

activity of compliance function is subject to independent
review. The compliance function and the audit function of
the bank should necessarily be kept separate.

Responsibility of Senior Management- The bank's senior
management are responsible for establishing a written
compliance policy that would contain the basic principles to
be followed by the management and staff, and would explain
the main process by which compliance risk would be
identified and managed through all the levels of the
organization. The senior management also ensures that the
appropriate remedial or disciplinary action is taken if
breaches are identified.

Senior management with the assistance of the compliance Focus of the compliance function on regulatory
officer identifies and assesses the main compliance risk being compliance, statutory compliance, compliance with fair
faced by the bank and also formulates the plan to manage practice codes and other codes prescribed/suggested
them. Senior/Top management is to submit quarterly and by self-regulatory organizations, government policies,
annual reviews as mentioned above to the Board/ ACB/ bank's internal policies and prevention of money
Board Committee in such a manner that the Board/ ACB/ laundering and funding of illegal activities.
Board Committee can make an informed judgment on
Reporting requirements including reporting of
whether the bank is managing its compliance risk effectively.
monitoring results, compliance risk assessment, change
in the compliance risk profile etc by compliance
Senior/Top management is also required to report promptly
department to the senior management and the Board
to the board of directors or the ACB on any material
of Directors or ACB or the committee of the Board as
compliance failure (e.g. failure that may attract a significant
the case may be.
risk of legal or regulatory sanctions, material financial loss,
or loss to reputation). Right of the compliance function to have access to
information necessary to carry out its responsibilities and
The Compliance Policy for pointing out/looking into possible breaches of
A robust compliance system in the bank includes a well compliance policy.
documented Compliance Policy, role and set up of the Independence of the compliance functions from audit
Compliance Department, composition of its staff and their function and clarity on their respective roles.
specific responsibilities. The policy should be reviewed
Mechanism for dissemination of information on
annually by the Board which broadly contains few important
regulatory guidelines among the operational staff and
aspects as mentioned below.
periodic updating the operational manuals to
Setting up of an independent Compliance Department
incorporate changes in regulatory and legal guidelines.
at the Head Office with a senior executive heading it
Approval process for all new processes and products by
with adequate support staff and its role and
responsibilities specified. the Compliance Department prior to their introduction.
Compliance structure in controlling offices and branches Right of the compliance function to freely disclose its
along with role and responsibility of each functionary in findings and views to senior management, Board/ACB
the compliance units. or the Committee of the Board.
Measures for ensuring the independence of the
The Compliance structure
compliance function. For example remuneration of the
compliance functionaries should not be related to the Compliance structure and composition of compliance unit
business line, though it can be related to the financial should depend on the bank's branch network, size,
performance of the bank as a whole. complexity of the business operations, sophistication of

38 | 2019 | JUNE | BANKING FINANCE