Traditionally, the compliance department is often looked upon as a cost centre or an unavoidable bureaucracy within a bank, occasionally even earning the nickname, 'business prevention unit.' This has since changed. Today, as a result of economic and socio-political forces, compliance and risk management has become one of the most important aspects of finance within any organization.
Since the US terrorist attack of September 11, 2001, anti-money laundering (AML) and combating the financing of terrorism (CFT) have both taken centre stage at the Financial Action Task Force (FATF), an international body created to address the threat of money laundering. The FATF's recommended guidelines havedeveloped into the de facto global standard for AML. Its inspection efforts of how AML regulation was implemented and enforced within jurisdictions has also gathered momentum.
A decade later, compliance policies continue to tighten and regulatory enforcement is increasingly common.Today, policies have become increasingly complex with risk management regulations evolving rapidlyat both international and domestic levels, moving beyond technical compliance toinclude the ongoing efficiency of the entire risk management programme.
These developments have impacted this region. Banks and financial institutions in Asia face two challenges. They need to conform to new regimes and changing regulations, such as the local transposition of FATF guidelines, or new sanction programmes in response to breaking political developments, while meeting local requirements. With more stringent and aggressive enforcement of existing regulations, there is a need for them to standardise policies and procedures across geographies and lines of business.
The Importance of Risked-Based Approach
The evolving banking landscape in Asia has opened the industry to new forms of risk. From mobile to electronic banking, banks are serving their customers across a widening array of channels. The proliferation of mobile devices has given rise to the demand for and provision of banking services for large unbanked populations in developing countries such as Indonesia. On the other hand, the rapid internationalisation of trade, increasingly in currencies such as the Renminbi, has brought about various implications and risks to cross-border settlement. All these developments have broughtfocus to new areas of compliance which require extended chains of extensive investigations.
To ensure compliance and remain efficient, banks and financialinstitutions in Asia Pacific have embraced a risk-based approach to compliance and risk management. Although complying with both local and global regulatory requirements can be costly, the cost of non-compliance is much greater than the fines or enforcement actions that often follow a regulatory breach. Non-compliance can significantly damage a company's reputation, and the cost of fixing the problem can be much more expensive while having a negative impact on the bottom line of the organization. Theoverall ongoing efficiency and effectiveness of a company's regulatory compliance programmes and risk management strategies is thuscrucial for an organization's survival.