Compliance in Banking

Topics: Management, Risk management, Bank Pages: 8 (2737 words) Published: April 9, 2013
Course -International Diploma in Compliance

Assignment due date-29th August, 2011


Board Memorandum
To:Board of Directors
Executive Management
Subject:Recommendations to promote the independence of the
Compliance Function
Date: 29th August, 2011

In reviewing last year regulator’ report on our bank, the bank have been imposed more than fifteen major violations from the regulators and some of the violations have got the bank into paying a huge amount of penalties. When penalties imposed the reputation of the bank will be at risk and this risk will lead the bank to financial loss. The bank has to redefine its risk measures and practices to avoid such failure in meeting regulators needs and meet all compliance requirements. Compliance Risk

Our bank is conceder to be one of the leader banks nationally and internationally and in order to keep this position the bank has to manage its compliance risk strictly starting from compliance function. The very common practice which conceder to be an issue from a regulatory aspect is going through all the rules and regulations and stating we are in compliance with them and we are not 100% complied. Now it is the time for the bank to put a full stop on such kind of issues and focus on working on compliance risk by having an effective and efficient compliance function. Effective Compliance Function

In April 2005 Basel Committee on Banking Supervision released a paper on Compliance and the Compliance Function in Banks. Over all the paper define and states the responsibilities of the Board of directors and senior management towards compliance and explain Compliance Function responsibilities with some other important principles which are related to compliance function. One of the important principles which the paper have mentioned is “Compliance Function Principles” which identifies four key measures that are frequently required by regulators across the world to encourage the independence of the compliance function in order to have an effective and efficient compliance function. The following are the four key measures:

* The appropriate seniority of the head of compliance.
* The specialization of the compliance function ( or at least the prevention of conflicts of interest) * A formal organization status.
* Free, unencumbered access to any member or staff or document. Establishing an effective Compliance Function in the bank is important in pursuing the highest level of Compliance with the applicable laws, rules and regulations and keeping reputations risk at ‘zero’ level. The Compliance Function plays an important role in corporate value creation, strengthening and preserving the bank’s good name and public confidence in the integrity of its operations and management. From that aspect and from the concept “Compliance starts at the top” hereby I’m setting out my recommendations to promote the above four key measures for the independence of the compliance function. The appropriate seniority of the head of compliance

The head of compliance should hold a position within the bank that confers the necessary authority to the function itself. No matter if the compliance officer has all the required and needed skills such as being able to put forth influence and be taken seriously in all the circumstances, having excellent communication and negotiation skills and regulatory and compliance knowledge compliance officer would not be able to perform or to exercise all that skills if the head of compliance does not have an appropriate seniority level. In order to ensure the effectiveness of compliance function the board shall give the compliance officer an appropriate level of independence, authority and experience. The board of directors or committee of the board has the exclusive right to appoint or remove the compliance officer and the bank should directly without delaying notify the board of director when...
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