#1 Bank compliance by DonaldWalker 09.10.2022 19:05

The compliance function in a bank, brokerage firm or other financial institution is designed to ensure compliance with all applicable rules, laws and regulations, whether local or international. The traditional compliance model was designed as a law enforcement tool, with only a limited focus on real risk identification and management.

Today, however, the tasks of the compliance staff include monitoring bank activities and identifying and evaluating risk areas. The latter may include testing and evaluating the adequacy of the bank's policies and security and risk assessment tools. The compliance unit can also implement solutions to address identified risks, design compliance programs for new rules and regulations, and oversee employee training programs.
Possible risks
Compliance rules, laws and standards typically cover matters related to maintaining reasonable standards of market conduct and treating clients fairly. Depending on the size of their business, banks' compliance obligations can range from preventing conflicts of interest, money laundering and tax evasion to monitoring trading activities and ensuring compliance with applicable regulations. The compliance requirements for most financial institutions have increased significantly since the financial crisis of 2008, and new compliance issues are constantly emerging – such as conduct risk, risk culture, anti-money laundering and the risk of the Next Generation Bank Secrecy Act (AML/BSA) and third – and including fourth party risk.

The compliance function needs to broaden its focus beyond the financial institution and its employees. It is also responsible for ensuring that the bank's customers do not use the bank for illegal activities such as tax evasion, money laundering or terrorist financing. If illegal activities are suspected, the compliance office must ensure that the bank takes the right steps, otherwise it can be held liable.

While banks view compliance requirements as a way to keep their reputations clean, non-compliance can result in hefty fines, regulatory and legal penalties, and reputational damage. “Compliance risk” is defined as a bank's risk of suffering regulatory or legal sanctions, reputational damage or significant financial loss because of its failure to comply with regulations, laws, rules, relevant self-regulatory standards and codes of conduct applicable to specific business operations.

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