Compliance & Risk Management in Banking: Legal Considerations

Banking is highly regulated for a reason. Financial institutions hold and manage other people’s money. There must be regulations in place to protect customers and investors. However, compliance can leave you in a maze of regulations and rules where one mistake could result in significant legal and financial problems. Our South Carolina business attorneys discuss compliance and risk management in banking, including strategies for reducing the risk of non-compliance. 

What Is Compliance Risk Management in Banking?

Compliance risks are a concern for any organization, especially for highly regulated businesses like banking. Banks must comply with a host of regulations set by the OCC (Office of the Comptroller of the Currency), the FDIC (Federal Deposit Insurance Corp.), and other regulatory agencies. 

Compliance risk management is the process of identifying and assessing risks related to compliance with industry standards and regulations. It includes the policies and procedures in place to monitor risks and compliance to ensure that a financial institution remains compliant. There should also be a procedure to assess the liability and losses a bank might face for non-compliance. 

The steps involved in compliance risk management for banks include:

Assessing Current Framework

Analyze the systems and processes you use to ensure compliance with regulations and standards. A robust framework for compliance risk management is essential. It should provide a structure to adequately control and monitor compliance risks. Assessing the strength of your current framework identifies areas that need to be improved to reduce risks.

Perform a Risk Assessment

Determine the types of compliance risk to the bank. Formulating a risk matrix is one of the best ways to understand the types of risks the bank faces and the likelihood and impact of each risk. An area that many banks overlook is cyber security compliance. Policies must be in place for effective measures that deal with cyber threats and risks. 

Pinpoint Gaps in Compliance

Identify areas where gaps exist in compliance. Immediately place practices and procedures to fill these gaps to ensure compliance with industry requirements and regulations or modify existing policies to address the compliance gaps. 

Foster a Culture of Compliance

Hold security training programs to ensure employees are aware of the policies and procedures for compliance. Ensure employees are comfortable taking an active role in compliance risk management, including reporting potential compliance risks. As part of the compliance management framework, implement clear responsibilities within the bank and install procedures for accountability.

Remain Current on Changes to Banking Regulations

Changes in regulations and compliance can create legal issues if you are not aware of the changes. Work with legal counsel to ensure you have a procedure in place to receive information about changes and implement new standards and policies to ensure compliance with the changes. 

Learn More About Compliance and Risk Management From Our South Carolina Business Attorneys

All businesses face issues with compliance and risk management. At Willcox, Buyck & Williams, P.A., our lawyers assist companies and business owners in implementing strategies and policies to ensure compliance and lower risks. We also help you navigate legal issues related to these matters. Call today to schedule a consultation with one of our South Carolina business attorneys.