Given the increasingly complex nature of banking operations owing to wide spread use of technology, product innovations and competitiveness in the industry, Financial Institutions (FIs) have confronted significant risk management and corporate governance challenges, particularly with respect to 'compliance risks' that transcend business lines, legal entities, and jurisdictions of operation.
The SBP being a progressive regulator has strived to foster the requisite Risk, Compliance & Governance (RCG) practices in the banking industry in line with changing consumer behavior and complexity of industry players to safeguard depositors' interest and bring the domestic industry at par with international standards and best practices.
According to a circular issued on Wednesday, the increasing competition and enhanced regulatory expectations in terms of fairness to customers, financial stability and compliance with applicable laws and regulations expose banks to significant challenges.
In this challenging macro environment, the effective compliance with regulatory requirements, best practices and internal policies has particularly become a key determinant for financial institutions' performance and stability. Therefore, policy-makers and financial institutions around the globe have modified the compliance risk management frameworks. These global initiatives mainly focus on refinements in corporate governance, risk management and internal control frameworks and inculcation of enabling culture that duly appreciates the importance of compliance risk, the circular said.
Therefore, the SBP, in line with best international practices, has developed guidelines on 'compliance risk management' to provide banking industry a uniform and systematic approach for identification, assessment and management of compliance risk. The guidelines aim to promote enabling 'compliance culture' in banks and strengthen the effectiveness of compliance function by adopting structured and risk focused approach.
The SBP is expecting that these guidelines will supplement the role and responsibilities of compliance function as already prescribed in regulation G-1 of Prudential Regulations for Corporate/Commercial Banking as amended from time to time. All banks/DFIs/MFBs are advised by SBP to comply with these guidelines in letter and in spirit. Keeping in view their size, nature & scope of business and complexities of operations, the banks/DFIs/MFBs are advised to bring their compliance functions, policies and procedures in line with requirement of guidelines by December 31, 2017.
Copyright Business Recorder, 2017