Regarding compliance, banks must uphold a higher standard than other business organizations. Simply put, banks carry the burden of much more stringent regulations that (if ignored) can result in significant monetary penalties. Let’s take a closer look at the compliance management must-haves for banks.
Access to Regulatory Updates
Banks are bound to comply with all state and federal regulatory laws, which can change at the drop of a dime. For example, the Consumer Financial Protection Bureau (CFPB) has authority over all banks and other financial institutions with over $10 billion in assets. They can issue consent orders requiring banks to pay for violating consumer protection laws and refer cases to the Department of Justice.
At the same time, banks may have another regulatory examiner, such as the Federal Deposit Insurance Corporation (FDIC) or the Office of the Comptroller of the Currency (OCC), while still adhering to state regulators’ requirements. With all these regulatory agencies overseeing banking compliance, banks must have a compliance management software to track regulatory changes and updates.
Integrated Compliance Management Processes
Unlike other businesses that may have one department that deals strictly with compliance issues, banks don’t have that luxury. Senior leadership and the board must set compliance policies that permeate the bank. Employees need to understand the dos and don’ts of compliance requirements and the rationale behind these policies.
When the compliance department is siloed from the rest of the bank, compliance risk is drastically increased. It’s essential that banking leaders set the tone at the top so that all banking employees understand their role in complying with laws and regulations.
Customer Data Protections
Specific laws such as the Gramm-Leach-Bliley Act, enacted in 1999, require that banks disclose their policies and practices for protecting the confidentiality, security, and integrity of customers’ nonpublic personal information.
Banks face more rigid data privacy protection laws than most businesses, requiring them to manage data privacy not only at their own institutions but also for third-party vendors that might have access to this information. Numerous data breaches have been the result not of banks mishandling legally protected consumer information but instead of vendors mishandling this data.
Banks should regularly assess their cybersecurity protections and those of their vendors.
Business Continuity Plans
Business continuity planning (BCP) ensures that banks can continue to operate effectively, even in the face of disruptions such as natural disasters, cyber incidents, and system outages. Operational resilience is essential for maintaining stability and safeguarding the interests of your institution and consumers.
BCP is also a compliance requirement, with regulators expecting banks to protect customer data and demonstrate operational resilience. A bank’s business continuity plan should spell out clear Recovery Time Objectives (RTOs), which capture the maximum allowable downtime (MAD) between restoring normal service levels and resuming activities. RTOs mark a turning point, after which the consequences of disruption become unacceptable.
Policies and Practices to Prevent Illegal Activity
Banks are required to comply with laws under the Bank Secrecy Act (BSA). Enforced by the Financial Crimes Enforcement Network (FinCEN), BSA mandates that banks maintain records and files for cash transactions exceeding a specified threshold ($10,000 as a daily aggregate).
They must also file Suspicious Activity Reports (SARs) related to transactions that might result from illegal activities. Banks should file SARs if a customer uses multiple identification on different occasions or if the transaction seems to serve no legitimate business or legal purpose.
Banks are required to verify the identity of their customers and assess the risks associated with their accounts to prevent money laundering, terrorist financing, and other illicit activities.
Conclusion
Banking organizations must conduct regular compliance risk assessments, typically aided by a compliance management system from a reputable third-party provider like Ncontracts, to ensure they comply with regulatory requirements.
