April 1st, 2007 witnessed the launch of the Compliance Alert, 1st portal addressed to the MENA region.
Compliance alert means a risk-alert different to every banking or financial organization.
From a bank's perspective, risk management should focus resources on the most important regulatory requirements in a cost-effective manner. We believe that compliance risk can be broken down into two types of risk, product risk and regulation risk, which are discussed below.
Product risk refers to characteristics of a bank that are likely to affect the probability and impact of noncompliance. These characteristics are related to such factors as the bank’s size, management expertise, and business orientation. To more effectively manage compliance, you may wish to consider the product risks applicable within your institution. For your information, the four product risk factors used by Federal Reserve examiners are listed and discussed below.
The materiality of a product is a factor of its importance relative to other products offered by the bank. The number or amount of commitments or sales may express materiality in terms of the assets or total deposits of the bank, or, in the case of off-balance-sheet products.
Product stability is measured by the product’s age and complexity relative to other products offered by the bank. New and high-growth products would be expected to contain higher risk. On the other hand, a high degree of automation may mitigate other factors.
Issues considered in this risk factor include the experience of management with new product offerings in general and with this product in particular. The quality and effectiveness of training and internal controls, the thoroughness of the internal and external audit functions, and the absence of past adverse findings should be considered when evaluating this factor.
Bank/Branch Size (Market Share) – In general, large banks/branches affect a greater number of consumers and bring a more complex array of products to the markets they serve. As such, large banks/branches have a higher level of risk than small ones. Market share qualifies this risk factor when the dominance of a bank or the absence of financial service alternatives produces a reliance on the bank by area consumers disproportionate to the bank’s size. The reverse may also be true of large wholesale or special purpose banks.
Regulation risk refers to the potential consequences to the general public and the bank of noncompliance with the regulation. Factors under this risk category include financial harm to consumers; legal, reputation, and financial harm to a bank; new laws, regulations, or amendments thereof; historical industry compliance; and the burden of corrective action, including potential civil and financial liability. The risk inherent in the consumer protection laws and regulations fluctuates in relation to changes in legislation, or market and public policy considerations. In establishing or evaluating a compliance program, you may first wish to consider the regulation risks that accompany your products.
The structure of a bank’s compliance program depends on many factors, including management’s philosophy, the past compliance performance of the institution, and the tenure and knowledge of bank employees. A less structured program may be adequate for a small organization with noncomplex products and a history of strong compliance. However, as an institution grows, adds branches, and increases its product offerings, a more structured program is typically appropriate. A structured program includes written policies and procedures that provide ongoing guidance to staff, particularly when management or staff turnover occurs. You should consider the following areas as you evaluate the appropriateness of the structure of your bank’s compliance program.
Written Policies – Formal written policies that outline compliance responsibility help ensure that all employees are aware of their role in achieving compliance. Depending on the depth of these policies, key compliance personnel may use them to ensure that specific goals are met and tasks are completed.
Policy Implementation – The most thorough and encompassing written policies and plans will have no effect on compliance performance without effective implementation. Consider identifying areas of responsibility in the written policies and developing a mechanism for the regular reporting of policy implementation and compliance.
Compliance Goal-Setting – During the bank’s annual planning process, management should also consider compliance goals. Appropriate strategies for meeting these goals should be determined and sufficient resources allocated during the budgeting process.
Resources - Management must assess, and provide for, the level of resources necessary to achieve or maintain the targeted level of compliance performance. Compliance resources include compliance personnel, line personnel, senior management involvement, staff training, and outside compliance publications.
Board and Senior Management - The institution’s board of directors should maintain an appropriate level of knowledge of bank compliance efforts and performance. Their oversight may be accomplished through regular briefings on such topics as audit and review activities, problem resolution, training efforts, and staff turnover. Additionally, participation in compliance committee activities provides board members and senior management with more direct involvement in the bank’s compliance efforts. When a bank experiences compliance difficulties, board and senior management attention is often found lacking.
Compliance Officer – Whether full- or part-time, the bank’s designated compliance officer should be someone with sufficient time to devote to monitoring and directing the bank’s compliance activities. The compliance officer and any assigned assistants should be of sufficient competency and have the requisite knowledge and authority. It is critical that the compliance officer has the authority to require and enforce correction of compliance problems. In addition, proper reporting lines are important to prevent conflicts of interest. Ideally, the compliance officer should report directly to the directorate, its compliance committee, or the bank’s chief executive officer.
Compliance Committee – Many institutions with successful compliance programs have established compliance committees that meet regularly and consist of personnel from various levels and departments. Senior management’s presence and/or support of such activities should be evident.
Compliance Alert, is a newsletter covering current issues and developments related to prevention money laundering and terrorism financing.
About Compliance Alert (CA)
Compliance Alert (compliancealert.org) is a professional association with members from the financial services industry. Through its programs, website and publications, CA's fosters improved relations, information sharing and understanding between the MENA region, Europe and North America and private financial sectors.
CA's mission is to develop a professional networking for individuals and institutions in a expanding anti-money laundering (AML) field. The association provides resources for financial institutions and related businesses that help train, identify and locate practitioners who specialize in money laundering control policies, procedures & regulations, and to promote the development and implementation of a sound anti-money laundering strategies and best practices.
CA aim to help financial and non-financial institutions remain in compliance by providing information on money laundering laws and regulations, we seek to help compliance officers by providing up-to-date information, education, career development and professional networking opportunities.