What do you need to know about banking compliance?

To keep the organization of a company in the financial market, which has such complex processes, it is necessary to implement (and follow) rules, policies and laws. One of these is banking compliance. Meeting these guidelines is critical to avoid problems with data security and the legislation of your sector.

However, many managers do not know or end up neglecting compliance instructions in an organization. They only realize the importance of this issue when fiscal problems or the freezing of the financial institution’s processes arise.

The whole strategy of preventing illicit practices has been even more important when we consider the scenario of process automation, globalization and ethical requirements. Check out the following content to understand what the term “banking compliance” is all about and how to keep the processes of the sector up-to-date and regulated.

Banking compliance

Compliance is a word that originates from the term “to comply”, i.e. to be in accordance with any orientation, rule, command or policy. Thus, banking compliance means complying with regulations, laws and guidelines, whether internal or external.

Its function is to prevent, detect and address any and all deviations, illegalities and nonconformities in the company’s operations. Therefore, it is a valuable support tool for managers and people responsible for:

  • information processing;
  • security;
  • risk management;
  • ethical conduct and other controls;
  • data reliability (including related to money laundering).

Due to the characteristics of the financial market, which have been changing over the years, and the emergence of new processes, banking compliance has a strong influence as an advisory strategy – not just preventive or detection.

After all, by complying with policies, guidelines and legislation, the business will have a more efficient decision-making process when it comes to strategies for risk prevention and the determination of values or missions within the bank.

The banking compliance department and its role

Due to the large expansion, importance and performance of banking compliance, many financial institutions already operate with a sector that is entirely responsible for ensuring the compliance with laws and regulations. This is primarily intended to prevent data theft and fines imposed by the government.

The United States were the first to suggest and apply a department solely focused on compliance activities. This model is already adopted by many large corporations.

Among the tasks of professionals, we highlight the freezing of the transaction or account in case of risk detection or suspicious procedures. This can be done in checking, savings and even financial investment accounts. Such actions are taken in an attempt to avoid or minimize administrative and financial losses to the bank.

The financial institutions’ compliance department also acts to prevent money laundering, tax evasion or activities that do not comply with the bank’s ethics and policy, which are suspicious, illegal or debt flight.

Implementing banking compliance

To implement banking compliance, the entire culture of the institution needs to be changed so that tighter and safer controls are adopted. It is best indicated that senior management is responsible for spreading the culture of compliance, as well as adapting the company and providing the necessary tools for risk and compliance management.

This responsibility should include:

  • approval of compliance policy (if in accordance with legislations and regulations);
  • compliance with management in accordance with compliance measures;
  • communicating to all staff, including partners and service providers, about compliance policy;
  • disclosure of ethical conduct as a bank culture.

Another key point for the success of banking compliance is the standardization and management of processes. Everyone in the institution must have standards for addressing risks, making inventories, and developing problem management and resolution.

This will make all steps of the procedures more efficient and challenges can be addressed by taking into account bank policy. However, for this strategy to be successfully performed, all staff, from customer service to senior management, must be engaged and fully knowledgeable and trained in compliance.

After all, it is necessary to identify risks and nonconformities from the front line – that is, during the process of reviewing and approving accounts or financial transactions, for example.

The banking compliance policy

The banking compliance policy is a set of procedures that includes the guidelines to be followed, the definition of responsibilities and personnel in charge, as well as the means of communication between staff and senior management.

Therefore, this policy should be structured taking into account the risks of the area of operation, the size of the financial institution and the complexity of the information that is received, processed and treated.

The execution and transparency of banking compliance

After defining the responsibilities and tools for monitoring and complying with banking compliance, it is necessary to ensure compliance with the institution’s processes. Therefore, it is essential to implement a process that signals any and all changes in the institution’s procedures.

There is also the definition of technological tools that allow measuring risks quantitatively, develop risk level markers and analyze the scenarios that involve the problem.

In order to maintain the transparency of all strategies, guidelines, policies and challenges encountered, it is recommended to document everything and ensure that the staff has access to the material. This will help identify information nonconformities and inconsistencies, as well as guide the professional on how to proceed and limit their work on the issues that really matter.

Finally, it is worth highlighting the need to always review action plans and compliance policies, as the processes, needs, structures and risk profiles of the financial institution change over time and as services evolve. Therefore, reviewing is a fundamental part of keeping the bank in full agreement with regulatory agencies and the mission of the business.

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