Gain Insights into Current Trends and Challenges Impacting the Financial Services Industry

Compliance Risk Assessment: Are Tier 1 Banks doing it Right?

Jenna Danko
Product Marketing

In today’s stringent regulatory environment with new standards and mandates coming to effect at a never-before seen pace, the mandate to keep up with regulatory changes and ensure ongoing compliance with these changes is a priority. Furthermore, banks are facing increasing compliance complexity from the growth of regulations and ad hoc approach to compliance management. Due to the nature and levels of risks inherent to their business activities, tier 1 financial institutions should have a compliance risk management framework that enables them to identify, monitor, and effectively control the compliance risks facing their entire organization. As a result, compliance risk management has emerged as key business concern across the globe.

Compliance risk, which is often overlooked as it blends into operational risk and transaction processing, is the risk to earnings or capital arising from violations of, or non-conformance with, laws, rules and regulations, code of conduct, customer relationship rules or ethical standards. It encompasses all laws, as well as prudent ethical standards and contractual obligations. Compliance risk also arises in situations where the laws or rules governing certain bank products or activities of the bank's clients may be ambiguous or untested. Compliance risk, also referred to as integrity risk sometimes, exposes the organization to legal penalties, payment of damages, limitation of business opportunities, diminished reputation, reduced franchise value, lessened expansion potential and the voiding of contracts.

Managing compliance risk has become a core skill that every financial institution must possess in today's highly regulated industry and a consolidated - or "enterprise-wide"- approach to compliance risk management has become "mission critical" for large, global financial institutions. Some of the critical factors that financial institutions should consider when embarking on this journey are:

  • A “Platform”: A platform based system, as opposed to a standalone compliance management framework, can not only offer a range of tools and features but it also can leverage data commonality between jurisdictions and lines of businesses.  Global financial institutions’ primarily challenge is managing the complexity of the global and local regulatory and compliance landscape. In such a scenario a standalone system is myopic and does not help the global compliance initiative.
  • Flexibility:  A tier 1 financial institution will look to its Compliance Risk Assessment program for measuring, controlling, monitoring and reporting compliance risks for different business lines across multiple jurisdictions. And this means that the institutions have to support a variety of risk assessment methodologies with diverse set of reporting and management requirements. Therefore it is important that the target compliance risk assessment platform is flexible to support these diverse needs effectively.
  • Integration: An institution’s Compliance Risk Assessment program is as effective as the data it leverages to assess its risk. This means that the program is going to rely on information which is housed in disparate systems and applications. Additionally the assessed risks have to be shared with variety of stakeholders across the organization at a local and global level. This bi-directional exchange of information necessitates strong integration capabilities. We expect that integration will be a primary driver for effectiveness of this program. And integration is not just limited to structure information but also unstructured information that is available across the organization silos. 
  • Scalability: Businesses need to grow in order to be successful, and if business isn’t prepared for that growth from an IT perspective, it can crash and burn. That’s why a target Compliance Risk Assessment framework should scale vertically and horizontally across the organization. 
  • Analytics: Finally, measuring the effectiveness of the compliance risk assessments for internal scorecards and for sharing with regulators is imperative. This is where Analytics can come to an organization’s aid. Analytics can help organization measure performance of monitoring and control systems and track positive and negative trends in risk management across the organization.

A smart blend of a great Compliance Risk Assessment framework and strong internal processes and governance can lead to a stronger overall compliance rating for the organization. A strong Compliance Risk Assessment program can help global bank’s achieve improved processing efficiencies in all of the identified Assessment areas. The rewards that will be realized with this achievement include the ability for the Compliance Risk Assessment teams to continue its growth plans through process automation and induction of additional risk assessment methodology, improvements in cycle times, improved customer satisfaction and reduced data integrity risks.

We’d love to hear what you’re doing to keep up with regulatory changes.  Do you have a strong Compliance Risk Assessment program in place?  We look forward to hearing your opinions and suggestions.

Garima Chaudhary is a Senior Sales Consultant for Oracle Financial Services Analytical Applications.  She can be reached at garima.chaudhary AT oracle.com.

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