New compliance norms for banks

MUMBAI: The Reserve Bank of India (RBI) on Friday notified new guidelines for banks to strengthen compliance functions and defined the role of the chief compliance officer (CCO) in ensuring global industry standards in risk management.

Banks must appoint a CCO to ensure an effective compliance culture, independent corporate compliance function, and a strong compliance risk management programme, the central bank said.

“It is observed that the banks (so far) follow diverse practices in this regard,” RBI said.

The central bank’s directive on Friday follows its notification in March 2015 asking CCOs to adhere to compliance guidelines under its risk-based supervision approach. Risk-based supervision focusses on evaluating present and future risks and seeks to identify emerging problems to take early corrective action. The regulator had said in its 2019-20 annual report that it soon intends to introduce a detailed framework on the role of chief compliance officers.

The primary role of the compliance function will be to apprise the board and senior management on regulations, rules and standards and to conduct assessment of the compliance risk.

Other functions will include reporting promptly to the board or chief executive officer about any major changes relating to the compliance risk and periodic reporting on compliance breaches.

The Reserve Bank of India also directed banks to frame a policy detailing their compliance philosophy, expectations on the compliance culture from the top, accountability, incentive structure, and effective communication and challenges in this regard, and get it approved by their boards. The policy must be reviewed once a year, it said.