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The Reserve Bank of India (RBI) has asked regulated entities (REs) to leverage technology to enhance the effectiveness of internal Compliance monitoring function.
This directive comes as a review of the aforementioned function showed that automation of the compliance monitoring process in REs remains a work in progress with various aspects of this function being carried out with significant manual intervention.
Regulated entities
The REs include Scheduled Commercial Banks (excluding Regional Rural Banks), Small Finance Banks; Payments Banks; large urban co-operative banks, large non-banking finance companies (including housing finance companies); Credit Information Companies and All India Financial Institutions.
RBI had recently carried out an assessment in select REs of the prevailing system in place for internal monitoring of compliance with regulatory instructions and the extent of usage of technological solutions to support this function.
The central bank noted that REs has adopted varying levels of automation to support the Internal Compliance monitoring function, ranging from use of macro-enabled spreadsheets to workflow-based software solutions.
The review brought out that automation of the compliance monitoring process in REs remains a work in progress with various aspects of this function being carried out with significant manual intervention.
Comprehensive review
“There is, thus, a need to implement comprehensive, integrated, enterprise-wide and workflow-based solutions/ tools to enhance the effectiveness of this function,” RBI said.
The central bank asked the REs to carry out a comprehensive review of the existing internal compliance tracking and monitoring processes and institute necessary changes to existing systems or implement new systems latest by June 30, 2024. It also wants an appropriate monitoring mechanism to be put in place to review the progress of its implementation.
In a recent speech at the Conference for Heads of Assurance Functions, RBI Deputy Governor Swaminathan J said:“The Compliance function is at the forefront of ensuring the integrity of banking operations. I would urge you to adopt a ‘regulation-plus’ approach, where the institution not only meets but exceeds regulatory expectations.
“The compliance function must go beyond mere adherence to regulatory requirements. Compliance officers must endeavour to ensure that products, processes, and outcomes fully comply not only with the letter of the law or regulation, but also the spirit and intent.”
This approach ensures not only regulatory compliance but also the cultivation of a culture that prioritises ethical conduct and sound business practices, he added.
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