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Confidus Solutions

Bank compliance

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

Today, however, the tasks of compliance staff include monitoring bank activities as well as identifying and evaluating risk areas. The latter may include testing and assessing the adequacy of the bank's policies and security and risk evaluation tools. The compliance unit may also implement solutions to address any identified risks, design compliance programmes for new rules and regulations and oversee employee training programmes.

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Potential risks

Compliance rules, laws and standards typically cover matters connected to the observance of proper standards of market conduct and fair treatment of customers. Depending on the scope of the business, bank compliance duties may range from preventing conflicts of interest, money laundering and tax evasion, to monitoring trading activity, to ensuring compliance with applicable regulations. Compliance requirements for most financial institutions have increased significantly since the 2008 financial crisis, and new compliance topics continue to emerge - such as conduct risk, risk culture, Anti-Money Laundering and next-generation Bank Secrecy Act (AML/BSA) risk and third- and fourth-party risk, among others.

The compliance function must extend its focus beyond the financial institution and its employees. It is also responsible for ensuring that the bank's clients don't use the bank for illegal activities, such as tax evasion, money laundering or funding terrorism. If there is any suspicion of illegal activity, the compliance unit must ensure that the bank takes the proper action, otherwise it can be held liable.

While banks view compliance requirements as a way of keeping their reputations clean, non-compliance may lead to large monetary fines and regulatory and legal sanctions, as well as loss of reputation. 'Compliance risk' is defined as a bank's risk of suffering regulatory or legal sanctions, loss of reputation or material financial loss due to a failure to comply with the regulations, laws, rules, relevant self-regulatory standards and codes of conduct applicable to certain business activities.

Compliance culture

After the financial crisis of 2008, bank compliance requirements increased significantly, with a corresponding growth in budgets and personnel. There are substantial differences between financial institutions in terms of the organisation of the compliance function. Internationally active banks can have both local and group compliance officers.

scheme of due diligence procedures

In larger banks, compliance staff may be found within each of the operating business lines, whereas in smaller banks all compliance staff may be located in one unit. As the bank's internal enforcement unit, the compliance unit should be independent from other departments. Nevertheless, compliance should be part of the organisation's culture, and not just the responsibility of compliance officers. It should be emphasised that a compliance culture starts at the top - the board of directors and senior management need to be setting the standards for honesty and integrity.

If you are looking to open a bank account, we would strongly recommend that you contact the Confidus team; we work with numerous banks and are aware of their compliance requirements, making it quick and easy to open an account.