New Compliance guidelines for Banks from RBI

BE/RBINOTE/49/2020

Reserve Bank of India issued guidelines to enforce uniform compliance practices across Banks. The requirements include:

• Board approved compliance policy
• Appointment of a Chief Compliance Officer (CCO) and
• Internal Audit of the Compliance Function

In order to bring in an effective compliance culture, an independent corporate compliance function and a strong compliance risk management programme at the bank and group levels, banks are advised to bring the required compliance in place.   Let us go through the details here.

• This is expected to be headed by a designated CCO who will be selected through a suitable process with an appropriate fit and proper evaluation/selection process.
• RBI adds that banks are following different approach which is not aligned with the required supervisory expectations on CCOs with best practices.
• These guidelines make it compulsory for the bank to lay down board-approved compliance policies which should spell their compliance philosophy, expectations on compliance culture covering tone from the top, accountability, incentive structure and effective communication and the challenges thereof.
• Also Boards are to define the structure and role of compliance function, the role of CCO and processes for identifying, assessing, monitoring, managing and reporting on compliance risk throughout the bank.
• Further, Banks are advised to develop and maintain a quality assurance and improvement programme which covers all aspects of compliance function and shall be subject to independent external review periodically at least once in three years.
• Also the policy is expected to stress on building up compliance culture, vetting of quality of supervisory/regulatory compliance reports to RBI by top executives, non-executive chairman/chairman and ACB (Audit committee of the board) of the bank, as the case may be.
• The policy should be reviewed atleast once a year.

Who will be the CCO?

Requirements are hereunder:

1. The CCO shall be a senior executive of the bank, preferably in the rank of a General Manager or an Equivalent position and not below two levels from the Chief Executive.
2. Also the CCO should be recruited from the market and should not be more than 55 years of age. He must have atleast 15 years experience in banking or financial services out of which at least five years shall be in the audit, finance, compliance, legal or risk management functions.
3. CCO also should have the ability to independently exercise judgment as also should have the freedom and sufficient authority to interact with regulators and supervisors directly and ensure compliance.
4. No Vigilance case of adverse observation from the RBI should be pending against the candidate identified for appointment as the CCO.
5. The CCO further shall have direct reporting lines to the MD and CEO and/or the board and ACB of the bank.
6. In case the CCO reports to the MD and CEO, the audit committee of the board shall meet the CCO every quarter on the one-on-one basis without the presence of the senior management, including the MD and CEO.
7. The CCO shall not have any reporting relationship with the business verticals of the bank and shall not be given any business targets.
8. Also, the performance appraisal of the CCO shall be reviewed by the board/ACB.