Is Compliance a Governance Issue?

by Cenen herrera
Writing from Martinez, San Francisco Bay Area


As a result of some uncontrolled deviations from good human behavior in the early part of this new millennium, Compliance has become an overarching objective of regulatory bodies in the banking industry. The regulatory alphabet soup provides a list of all the compliance rules that a national bank should adhere to in its operations. Some of the core principles that underpin most of these regulations focus on the following:
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(i)Consumer Protection – Banks are public institutions which have extensive dealings with people in the community where it is of service. Some banks may be serving several communities even though these communities are not located within their business office, i.e. electronic banking transactions. Thus, it is important that certain rules are adopted in order to protect public interest and to preserve the integrity of legitimate financial transactions.
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(ii)Bank Secrecy, Anti-Money Laundering and Security – In any fiduciary undertaking, security is of great interest. Building relationship is the primary business of any banking institution. That relationship is anchored on trust which provides the public a baseline confidence for enabling depositors and borrowers to carry out their business with the bank of their choice. A good society will always encourage the preservation of ethical transactions in its banking industry, meaning, it will prohibit banking transactions that arise out of illegitimate or illegal sources. Further, legitimate banking transactions should be afforded not only with top-of-the line security measures but treated with respect in terms of preserving the secrets of a prudent Bank client.
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(iii)Social Responsibility – In the Consumer Reinvestment Act, banks are provided guidelines on how to demonstrate the parental care that is expected from a responsible business partner in the community. Banks are social institutions that provide ample opportunities to the community it serves in terms of employment, housing and other developmental projects.
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At the end of the day, compliance is a governance issue. This implies that there must be some basic rules that players in a particular industry should observe to meet the expectations of a Good Society. Banks are generators of intermediary benefits and how they allocate the benefits that they generate from their operations is of great interest to its stakeholders.