Compliance Management Systems Made Mandatory by RBI for Banks
The Reserve Bank of India (RBI) has recently directed financial institutions to adopt technology-based solutions to monitor their internal compliance processes and functions. The circular, on streamlining the internal compliance monitoring processes and functions of its regulated entities (REs). These REs include-
The Reserve Bank had earlier looked into the prevailing compliance monitoring systems deployed by selected REs to ensure compliance with their regulatory obligations. It found that they had adopted and implemented varying levels of automation, ranging from macro-enabled spreadsheets to workflow-based software solutions.
RBI concluded that comprehensive, integrated, enterprise-wide and workflow-based solutions/ tools (compliance management systems) are needed to enhance the effectiveness of REs' compliance monitoring functions. Consequently, REs have been directed to review their existing internal compliance tracking and monitoring processes. A deadline of 30.06.2024 has been set for REs to incorporate the required changes or implement new internal compliance management systems with the aim of automating compliance monitoring and reducing manual intervention.
A Suitable Compliance Monitoring Solution
The circular further lists down the criteria for such a compliance management system, requiring it to be able to:
1 - Provide a platform for effective communication and collaboration among all the stakeholders (business, compliance and IT teams, Senior Management, etc.) It should incorporate workflow mechanisms for the maker checker concept, facilitating transparency and accountability. Additionally, the system should provide tools for digital collaboration and maintain a comprehensive digital ledger of all actions taken, ensuring regulatory compliance and effective internal management.
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2 - (Identify, assess, monitor and manage compliance requirements)?This involves a compliance applicability assessment. Through this assessment, the system can determine which regulations are applicable to the business and prioritize them accordingly. This ensures that the organization remains aware of its compliance obligations and can take proactive measures to address any gaps or risks.
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3 -?Escalate issues of non-compliance?The compliance management system should include a robust notification engine to escalate issues of non-compliance efficiently. This engine should trigger reminder emails containing all critical compliance information, including entity/location, regulatory act, compliance description, period, due date, and risk assessment By integrating this notification engine, the system ensures that relevant stakeholders are promptly alerted to compliance issues, enabling timely action and resolution.
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4 - Ask for recorded approval from a competent authority for any deviations/ delays in compliance submissions/ filings?It should feature a workflow ensuring reviewer approver, visible status tracking for management, and digitally published compliance certificates, enhancing credibility and verification efficiency.
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5 - Provide a unified dashboard view to Senior Management on the compliance position of the Regulated Entity as a whole?This dashboard should offer customizable widgets based on risk, regulatory acts, and categories. It should also allow for configurable views by financial year, entity/location, periods, users, acts, and risk levels. Additionally, the system should present compliance status information by risk, user, entity/location, category, and role, enabling easy assessment.?
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How do you choose an RBI required internal compliance management system?
The Banking systems will play a critical role in boosting the economy during this ‘Amrit Kaal’ of the nation. However, the fluid and dynamic regulatory environment with a large number of compliance obligations and high cost of non-compliance has significantly increased the complexities around compliance. As a result, compliance risks can materialise in multiple ways; in case organisations are unaware of the applicable compliances, they do not have a formal compliance organogram, and they do not adopt a methodical way of managing compliance across the organisation are some of the most common reasons for non-compliance.
For instance, a typical mid-sized financial institution, such as a single-entity NBFC with just a single-state operation, deals with 621 unique compliance obligations. These obligations can go into thousands of annual obligations once the frequency is factored in. This level of complexity cannot be managed with manual processes.?
Technology-based digital solutions can help REs mitigate risks with compliance applicability assessments (thereby providing a list of all applicable compliances) and a tech-enabled platform (to automate the compliance management process). These compliance management systems can help the top management focus on critical/high-risk compliances which may severely impact the company’s reputation and/or stability. With automatic advance reminders for compliance obligations, non-compliance or compliance delays are avoided. Intuitive dashboards and graphical reports help in entity-wise / location-wise / user-wise comparison of compliance performance and help in quick decision-making. By adopting digital compliance management systems, these institutions can avoid penalties brought on by lapses, delays and defaults resulting from ad-hoc, paper-based, and people-dependent compliance processes. These solutions will allow REs to stay on top of all RBI's circulars, directions, notices, and advisories.
RegTrack by TeamLease RegTech is a cutting-edge compliance management system designed to streamline compliance tracking and management processes.
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