How Compliance Management System Is Beneficial?
Emerging new laws and regulations about compliance and risk has made it crucial for the financial institution executives to be concerned. Every bank differs in their functions but have a single thing in common and that is compliance. Non-compliance with regulations can affect brand reputation of the financial institution, which can make them loose customers. Consequences of non-compliance can be legal action, fine, temporary suspension or permanent shutter-down.
Significance of compliance management is crucial in financial institution more than other sectors, especially after financial crisis of 2008, banks experienced great scrutiny from the government. There are innumerable statutory and regulatory compliance government needs. Therefore every financial institute needs to have a reliable compliance management system installed to make sure that every needs are obeyed. In addition, the bank is familiar with the latest updates.
Regulators are pursuing law-breaking institutions aggressively. High penalties are imposed on those who break regulations. Financial institutions failing to adhere to regulations are exposed to litigation and scrutiny. Therefore, have robust compliance mechanism in place.
Compliance management program helps in several ways
Monitors clients activities
Financial institutions need to keep track of their client’s transaction internally and externally. It is crucial to see, if consumers operate legally. Illegal actions include evading taxes, money laundering, or funding terrorism. Such illegal activities, if detected need to be reported for decreasing their responsibility.
Communication between departments
Besides staying informed about the changing rules and regulations, communication is also crucial. Sometimes regulators need extra documentation from the financial institution. The compliance program enables to inform the concerned department about the necessary paperwork and time frame they have to prepare them.
Supervise operational requirements
A robust compliance program supervises the operational necessities. It includes –
- Annual Percentage rates & fees suggested must be within specific limits
- Solicitation & advertising practice needs to be within specific limits.
- Disclose every related information to consumer on-time.
- Document records need to be retained according to guidelines
- Deliver re-disclosure to consumers if there is changes in regulations
- Make sure consumers are familiar with their rights and able to rescind
An efficient compliance management program sends reminders prior due date to concerned personnel. Monitors every compliance activities and if a rule gets missed then it ensures that the bank completes it as soon as possible.
It is a necessity that all financial institutions have compliance management software installed. In the past, many small institutions tried to avoid the cost of investing in compliance management program. Today, the non-compliance cost significantly outweighs the expenses associated with installing compliance mechanism.