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The Reserve Bank of India (RBI) has asked urban co-operative banks (UCBs) with more than ₹10,000 crore deposits (Tier 4 category) to put in place a Board-approved policy and a Compliance Function, including the appointment of a Chief Compliance Officer (CCO) latest by April 1, 2023.
UCBs more than ₹1,000 crore and up to ₹10,000 crore deposits (Tier 3 category) too have been asked to implement the same, latest by October 1, 2023.
Compliance policy
As per the RBI framework, the aforementioned categories of UCBs have been asked to lay down a Board-approved Compliance Policy clearly spelling out their Compliance philosophy, expectations on Compliance culture, structure and role of the Compliance Function, the role of CCO, processes for identifying, assessing, monitoring, managing and reporting on Compliance risk. The Policy is to be reviewed at least once a year.
These Banks will be required need to carry out an annual Compliance risk assessment in order to identify and assess major Compliance risks faced by them and prepare a plan to manage the risks. The annual review will be carried out by the Senior Management
Compliance function shall ensure strict observance of all statutory and regulatory requirements for the UCB, including standards of conduct, managing conflict of interest, treating customers fairly and ensuring the suitability of customer service, RBI said in a circular to UCBs.
Compliance risk
Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss of reputation a UCB may suffer, as a result of its failure to comply with laws, regulations, rules, and codes of conduct, etc., applicable to its activities.
There shall not be any ‘dual hatting,’ — the CCO cannot be given any responsibility which brings elements of conflict of interest, especially any role relating to business, per the circular.
The Board / Board Committee will be required to ensure that an appropriate Compliance Policy is put in place and implemented. Further, the Board / Board Committee shall prescribe the periodicity for review of Compliance risk.
Remedial action
UCB senior management has been asked to carry out an exercise, at least once a year, to identify and assess the major Compliance risk facing their bank and formulate plans to manage it; submit to the Board / Board Committee a review at the prescribed periodicity and a detailed annual review of Compliance; and report promptly to the Board / Board Committee on any material Compliance failure while ensuring that appropriate remedial or disciplinary action is taken.
The CCO, who should be appointed for a minimum fixed tenure of 3 years and will have direct reporting lines to the MD & CEO and / or Board / Board Committee, and Compliance Function will have the authority to communicate with any staff member and have access to all records or files that are necessary to enable her / him to carry out entrusted responsibilities in respect of Compliance issues.
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