Compliance is recognized by the financial industry as a high-risk function. Failure to manage it effectively can result in high costs to an institution, as witnessed by many supervisory enforcement actions and fair lending settlements over the years. Compliance management is an important element of an institution’s overall risk management efforts. It makes sense to ensure that it is “owned” by line managers, those whose operations will generate either compliance or noncompliance, just as with all other elements of the institution’s overall risk. To make compliance management work well — effectively and efficiently — line personnel need to be given the tools to succeed at compliance and then held responsible for their results. When senior management establishes accountability and all staff believe it, and compliance performance is measured meaningfully, positive compliance results can occur. As with other aspects of compliance management, identifying and categorizing levels and types of compliance risks are critical to both efficient operations and effective outcomes in any system of enforcing accountability. Noncompliance as Risk In recent years, federal agencies have made a fundamental shift in how they examine financial institutions for compliance within their overall examination process, adopting a risk-based methodology. The agencies’ programs are designed to focus examiner attention on areas within financial institutions that may pose the most significant risks, including compliance. The agencies work to promote a sound risk-management process at each regulated financial institution, one centered on the evaluation and management of risks. The agencies try to help financial institutions implement compliance programs that focus on anticipating, evaluating, managing and communicating about key compliance risks. “Compliance risk” is defined as that risk to earnings or capital that arises from violations of or nonconformance with laws, rules, regulations, prescribed practices or ethical standards. The agencies’ examination procedures provide that compliance risk can damage an institution through any or all of the following consequences: • Regulatory or judicial fines and penalties • Payments of damages to aggrieved parties • Voiding of contracts • Diminished reputation • Reduced franchise value (due to monetary and reputation losses or penalties) • Diminished business opportunities • Lessened expansion potential (e.g., when fair lending or Community Reinvestment Act problems delay or disallow corporate changes, mergers or acquisitions) The supervisory agencies recognize that an important element in avoiding these risks and their resultant costs is an effective accountability system, in which institution staff feel they own their roles in the overall program. Establishing Accountability An effective accountability system has to be built around a solid design. A few key elements are needed to make it succeed: management commitment; appropriate training of and communication to all staff; regular, independent testing of performance; and consistent enforcement of responsibility. Management Commitment Solid support from both the board of directors and senior management is vital to the success of any compliance (or other) management function. It should also be seen as in their best interests since the risks and penalties for noncompliance are tremendous, and the board and management are ultimately responsible for the institution’s compliance (and other) performance. Management and the board need to understand the true importance of compliance — it is not a job to be relegated to one person, or a small group, and ignored by everyone else. “Everyone else” includes those who drive the institution’s compliance performance, and they must be given the tools to succeed and held accountable for their results. Training and Communication Training is the foundation for effective compliance and accountability, since employees cannot be expected to comply with the plethora of laws and regulations that govern banking today Accountability: The Key to Compliance Success By WILLIAM J. SHOWALTER, CRCM, CRP Senior Consultant, Young & Associates Inc. 18 NEBRASKA INDEPENDENT BANKER
RkJQdWJsaXNoZXIy MTg3NDExNQ==