RBI moves to harmonise compliance culture across banks

RBI said banks are required to have an effective compliance culture, independent corporate compliance function and a strong compliance risk management programme. The function is required to be headed by a designated chief compliance officer (CCO).

“However, it is observed that the banks follow diverse practices in this regard," the central bank said.

RBI directed banks to lay down a board-approved compliance policy spelling out its compliance philosophy, expectations on compliance culture covering tone from the top, accountability, incentive structure and effective communication and challenges thereof, among other things.

“The bank shall also develop and maintain a quality assurance and improvement program covering all aspects of the compliance function. The quality assurance and improvement program shall be subject to independent external review periodically (at least once in three years)," it said, adding that the compliance policy shall be reviewed at least once a year.

The CCO, it said, should be appointed for a minimum fixed tenure of three years. He or she should either be a senior executive of the bank, preferably in the rank of a general manager or equivalent. The CCO must not be more than 55 years of age and with an overall experience of at least 15 years in the banking or financial services, out of which minimum five years should be in the audit, finance, compliance, legal or risk management functions.

“The CCO shall have the ability to independently exercise judgement. He or she should have the freedom and sufficient authority to interact with regulators or supervisors directly and ensure compliance and no vigilance case or adverse observation from RBI, shall be pending against the candidate," the regulator said.

The department of supervision of RBI will have to be informed before appointment, premature transfer or removal of the CCO. Moreover, such information will have to be supported by a detailed profile of the candidate along with the fit and proper certification by the bank’s chief executive.

The compliance officer will have direct reporting lines to the chief executive and or board of the lender. The CCO, the central bank said, will not have any reporting relationship with the business verticals of the bank and will not be given any business targets.

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 about any major changes relating to the compliance risk and periodic reporting on compliance breaches.

RBI said the circular would come into effect immediately and any new appointment shall be subject to these guidelines. However, banks that already have a CCO, will have to follow the indicated selection process within six months and are free to reappoint the current incumbent as the CCO if she or he meets the requirements.