Page 39 - Banking Finance June 2019

ARTICLE

products and services offered by the bank. The structure limited to the banking sector. For example, a bank which is
should avoid all potential conflicts of interest. acting as a corporate agent for distribution of other
companies' insurance products may receive direction from
Compliance Department should be set up at the Head Office IRDA, which should be a part of the compliance function.
of the bank, (in the case of foreign bank branches it should Further, discomfort conveyed to the bank on any issue by
be at the bank's Principal Office in India) and it should be other regulators, should be brought to the notice of the
headed by an executive or senior staff member of the cadre Reserve Bank of India.
not less than in the rank of DGM or equivalent designated
as chief Compliance Officer with overall responsibility for The Chief Compliance Officer is the nodal point of contact
coordinating the identification and management of the between the bank and the regulator. Regardless of how the
bank's compliance risk and supervising the activities of other compliance function is organized within a bank. Apart from
compliance department staff. the basic qualifications, the Compliance staff should
preferably have fair knowledge of law, accountancy and
He should report to the senior management of the bank and information technology and also adequate practical
also have the right to report directly to the Board of experience in various business lines and audit/inspection
Directors or ACB or the committee of the Board, as the case functions to enable them to carry out their duties effectively.
may be. Compliance process and procedures

The Compliance Officer should be appointed for a fixed The Compliance Department identify the level of compliance
tenure as per bank's compliance policy, and during that risk in each business line, products and processes and issue
tenure, he may be removed/transferred only with the instructions to operational functionaries/formulate proposals
approval of the Board and through an internal for mitigation of such risk. It also circulates the instances of
administrative procedure in which his negligence in compliance failures among staff along with preventive
discharging compliance function or his serious acts of instructions periodically.
omission and commissions in other financial or administrative
matters is established and recorded in a transparent The Chief Compliance Officer is an invitee to the meetings
manner. of the ACB. Generally, a check-list on the compliance aspect
is made part of the inspection report for the inspectors/
The Board, Audit Committee of the Board or any other concurrent auditors to verify the level of compliance. The
Board Committee as the case may be, should be kept audit function should keep the head of compliance informed
informed of any change in the Chief Compliance Officer as of audit findings related to compliance.
also the reason for the change in the incumbent. The
Reserve Bank of India shall be kept informed of the name Compliance department is required to vet the guidelines/
of the Chief Compliance Officer as also any change thereof, circulars issued, for compliance with regulatory guidelines
as and when it takes place. before these are disseminated amongst the operational
units. There should be a robust mechanism to ensure that
The Compliance Department should be provided with regulatory guidelines/instructions are promptly issued/
adequate staff reporting to the Chief Compliance Officer. disseminated within the organization. The Compliance
Under no circumstances, the compliance staff should be Department serves as a reference point for the bank's staff
assigned audit/inspection duty as it gives rise to serious from operational departments for seeking clarifications/
conflict of interest in view of the fact that all products and interpretations of various regulatory and statutory
processes are expected to be cleared by the Compliance guidelines.
Department and its audit needs to be carried out
independently by separate set of staff. The Compliance Department interacts with Legal
Department, Operational Risk Management Department,
The compliance function should also attend to the Taxation Department and Audit/Inspection Department of
compliance of directions from other regulators (IRDA, SEBI the bank to take stock of the latest developments at
etc) in those cases where the activities of the bank are not frequent intervals. The Chief Compliance Officer is a

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