The Importance of the Compliance Function

What is compliance?

In banking, Compliance means complying with regulations, laws, guidelines, and standards -- whether internal or external.

What are the main principles for good compliance?

• The Board of Directors is responsible for overseeing compliance risk, with senior management responsible for its effective management.
• Banks need a corporate culture that emphasises standards of honesty and integrity.
• Compliance must be independent of line functions so there are no conflicts of interest and have the necessary resources.
• Compliance must be subject to periodic review by the internal audit function.
• Banks must comply with applicable laws and regulations in all jurisdictions where they do business.

How did compliance fail in the Global Financial Crisis?  What were the costs?

In the run up to the GFC, Boards of Directors and Senior Management were not focused enough on compliance, did not fully understand the risks, and did not set the right culture. Compliance teams were under-resourced. Banks paid out over $600 billion in fines and suffered huge reputational damage.

How has compliance changed?

Banks have responded by “super-sizing” compliance, over 50% more on Compliance with staff numbers greatly increased. “Regtech” has become a whole new industry, where technology is used to identify risks and help ensure compliance.