The banking sector has had its highs and lows. However, because of the vital role the industry plays in global and local economics, there is always huge spotlight. As part of streamlining the industry and enhancing transparency and integrity, regulations have been developed by various bodies including the EU to set standards in banking and finance. There are literally millions of regulations that banks and Payment service providers must comply with and as such, getting lost in this maze is quiet easy. It is therefore important for banks and financial service providers to develop realistic and actionable models that can aid in regulatory compliance while reducing exposure to financial crime.

The Compliance Challenge

The challenges of compliance are immense though. While regulatory requirements have been developed to help firms in financial services manage risks, there is a big leap between understanding regulatory requirements and designing the management actions needed towards meeting them. So the biggest question remains simple. How does a bank or a payment service provider bridge the gap between the regulations and management actions that help meet those regulations? Compliance is not just about looking at the rules and saying we need to follow. It’s about developing efficient internal systems that respond to changing risks and help remove inadequacies within the bank that inhibit full compliance. Well, we have identified three core principles that should drive compliance frameworks or models in the banking industry. Here they are:

A Movement from Passive to Active Risk Management

The role of compliance monitoring teams within banks should be expanded from just ensuring regulations are met to active involvement in preempting risks and developing mechanisms to address them. Although meeting statutory laws, rules and requirements is important, compliance has to be seen as a broader strategy designed to help the bank understand underlying financial risks.

All Risks Must Be Considered

The practice in banking at the moment as far as compliance monitoring is concerned is based on identifying “High risk processes” and all the control measures that are in place to handle this. This is why banks will flag transactions that exceed a certain amount. While this approach has worked, it cannot be the only one. Residual risks or small risks also need to be identified and incorporated in the overall risk mitigation plan.

Integration of Compliance Monitoring In Overall Governance

It is important for banks to incorporate compliance monitoring into the overall governance structure within the company. Risk assessment and regulatory compliance should not be the reserve of the risk and compliance team, it should spread across all departments. For example, some institutions are exploring the idea of having compliance experts working within each department. Some are engaging in training programs for staff in order to generate awareness on compliance and the benefits therein.

These are three of the core principles that must be incorporated in a modern compliance model for the banking sector. You can visit Trapets today for more information on compliance monitoring solutions and tips.