All financial institutions are subject to various laws and regulations that are designed to protect consumers and ensure that they are treated fairly. If these laws or regulations are violated, an institution could potentially face fines or other penalties. This could occur for a variety of reasons, such as engaging in fraudulent activity, failing to follow proper lending practices, or violating consumer protection laws.

Compliance is the function that ensures that individuals and organizations adhere to laws, regulations, and standards. In the finance world, compliance is an important function that helps the banks and other financial services companies avoid legal and financial consequences for failing to follow rules and regulations.

It includes a wide range of activities, from developing policies and procedures in line with local or international regulations to implementing controls and monitoring behaviour. There are a lot of regulations that the international financial services firms need to comply with and given their size the regulators around the world can implement hefty fines to these institutions, and failure to adhear to them can result in significant penalties as described below:

• UK regulator called Financial Conduct Authority (FCA) has recently fined NatWest for £264.8m across three criminal cases related to anti-money laundering (AML) processes. The judge on that case, Mrs Justice Cockerill has highlighted that “although in no way complicit in the money laundering which took place, the bank was functionally vital. Without the bank – and the bank’s failures – the money could not be effectively laundered.” The bank has taken huge amounts of cash into the one of its customer’s accounts. Despite having strong Know-your-customer (KYC) process, it has failed to adhere to its AML principles and disregarded the suspicion reports that were filed internally.
• £264.8m is a lot of money, however it is not the largest fine handed by FCA. Barclays has received a fine of £284m in 2015. Their fault has occurred within their foreign exchange (FX) business. The procedures and processes related confidentiality, conflicts of interest and trader conduct were at fault and has resulted in collusion. The bank has settled the case ahead of the final court decision, which has qualified them for a 20% discount.

These cases further highlights the fact that compliance does not only work as a part of specific transaction monitoring, but rather creating the overall approach to risks that can result in illegal behaviour, even when the bank is just a part of it.

Another important aspect compliance works on is reputation. By demonstrating a commitment to following the rules and regulations, a company can build trust with its customers and other stakeholders. It is especially important in heavily regulated financial sector.

Implementation of the effective compliance programs can protect the financial institutions from legal and financial risks, improve their reputation, and build trust with their customers.

Please note, none of the information on this blog represents the opinion of my employer and all information does not represent a financial advice.