Role of Compliance Officer in Oversight for Operational Risk

Role of Compliance Officer in Oversight for Operational Risk

1. Framework Development and Maintenance: Establish and maintain the operational risk framework, including policy development, procedures, and control mechanisms, ensuring alignment with regulatory standards such as those set by the Central Bank of the UAE (CBUAE) and DIFC requirements.
2. Regulatory Compliance: Ensure compliance with anti-money laundering (AML), counter-terrorist financing (CFT), and targeted financial sanctions (TFS) requirements, as outlined in Cabinet Decision No. 74 of 2020 and related guidelines. Monitor adherence to UNSC and local sanctions lists and ensure timely updates and reporting as per TFS obligations.
3. Operational Risk Identification and Assessment: Oversee risk identification processes, including Risk and Control Self-Assessments (RCSAs), key risk indicators (KRIs), and emerging operational risk trends. Conduct regular reviews of inherent and residual risks, evaluating controls and their effectiveness.
4. Incident and Fraud Management: Monitor and investigate operational incidents and fraud events, ensuring root cause analysis and implementation of corrective actions. Maintain detailed records of risk events and losses, facilitating the compilation of trend analysis and reports for senior management.
5. Embedding Risk Culture: Promote an operational risk-aware culture by providing training and advisory services to business units, ensuring that risk owners understand their responsibilities. Strengthen the three lines of defense model, clarifying roles across operational, compliance, and internal audit functions.
6. Regulatory Reporting and Communication: Prepare and submit comprehensive management information (MI) and compliance reports, including key updates for Board Risk Management Committees (BRMC). Facilitate regulatory inspections and audits, ensuring all necessary documentation is accurate and up-to-date.
7. Technology and Automation: Leverage technology for operational risk management, such as automated monitoring systems, to enhance efficiency in detecting and mitigating risks.
8. Continuous Monitoring and Improvement: Periodically review and test the operational risk framework and business continuity plans, aligning them with evolving regulatory standards and business needs. Provide recommendations for enhancing the institution's risk management framework and ensure readiness for new regulatory developments.
9. Advisory on Outsourcing and New Initiatives: Assess and provide guidance on outsourcing arrangements and new business initiatives from an operational risk perspective, ensuring adequate controls are in place.

Management Reporting Responsibilities

1. Risk Metrics and Dashboards: Compile and present dashboards featuring KRIs, risk event summaries, and compliance metrics to senior management and the board.
2. Incident Reporting: Maintain logs of incidents and escalations, ensuring timely updates and clear communication to relevant stakeholders, including regulators.
3. Strategic Recommendations: Provide insights and strategic advice to management based on trend analysis, regulatory changes, and industry best practices.

?

Practical Illustrations for the Role of Compliance Officer in Operational Risk Oversight

1. Scenario 1: Implementing an Incident Management System Action: Introduce a centralized platform for logging operational risk incidents, categorizing them by severity, and tracking remediation progress. Outcome: Improved visibility of risk events, faster resolution, and compliance with reporting obligations to regulators like CBUAE.
2. Scenario 2: Monitoring Sanctions Screening Performance Action: Regularly test the effectiveness of sanctions screening tools by simulating potential matches from updated UNSC and local terrorist lists. Outcome: Identifies system weaknesses, reduces false positives, and ensures compliance with targeted financial sanctions (TFS) requirements.
3. Scenario 3: Conducting RCSA Workshops Action: Organize workshops for business unit managers to identify and assess their operational risks using the Risk and Control Self-Assessment (RCSA) methodology. Outcome: Promotes ownership of risk and aligns operational practices with the bank's risk appetite.
4. Scenario 4: Fraud Risk Assessment Action: Use historical data to analyze patterns in fraud incidents, implement predictive analytics, and refine fraud detection controls. Outcome: Reduces the likelihood of recurring fraud and strengthens internal controls.
5. Scenario 5: Training Staff on Operational Risk Policies Action: Develop e-learning modules and case studies on AML/CFT, operational risk management, and business continuity for employees at all levels. Outcome: Builds risk awareness and embeds a culture of compliance across the organization.
6. Scenario 6: Reporting to the Board Risk Management Committee (BRMC) Action: Prepare a quarterly report detailing key risk metrics, incidents, regulatory updates, and areas requiring board-level attention. Outcome: Enables informed decision-making by senior management and adherence to governance standards.
7. Scenario 7: Enhancing Outsourcing Risk Management Action: Conduct risk assessments for critical outsourced services, ensuring alignment with the bank’s risk framework and regulatory guidelines. Outcome: Minimizes potential risks from third-party dependencies and ensures compliance with outsourcing rules.
8. Scenario 8: Conducting a Business Continuity Plan (BCP) Drill Action: Simulate a cyberattack to test the institution's readiness and resilience, focusing on critical operations and recovery processes. Outcome: Identifies gaps in the BCP and enhances preparedness for actual disruptions.
9. Scenario 9: Automating Regulatory Reporting Action: Use an automated reporting tool to generate and submit reports on suspicious transactions (STRs) and sanctions compliance to the FIU and relevant regulators. Outcome: Streamlines compliance processes, reduces manual errors, and ensures timely submissions.
10. Scenario 10: Managing Emerging Risks Action: Develop a proactive risk monitoring system to identify and mitigate risks arising from new technologies, such as virtual assets or digital banking channels. Outcome: Strengthens the institution’s ability to address technological and cyber threats while ensuring alignment with evolving regulations.

?for education purpose only. www.decodingscenarios.com