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New Report by the Economist Intelligence Unit Says Banks Can't Risk Getting Compliance Wrong

Chief compliance officers at banks throughout the world are haunted by a fundamental concern: "Is my compliance program effective overall?"

That's one of the insights reported in Bank Compliance: Controlling Risk and Improving Effectiveness, a new report developed by the Economist Intelligence Unit.

Sponsored by Oracle and based on a survey of 275 senior banking executives around the world, the new survey examines compliance systems and their underlying processes.

In addition to concerns about overall compliance effectiveness, financial services and banking companies grapple with ever-more-numerous and tougher regulations that are harder to satisfy as banks launch complex product offerings over larger geographic areas.

In addition to legal troubles, noncompliance could foster an equally negative result—damaged reputations. "Reputation risk is truly global now. If you get something wrong, or are perceived to get something wrong, it carries greater potential damage," David Bagley, head of group compliance at Hong Kong and Shanghai Banking Corporation, told the EIU.

Companies that successfully avoid compliance-related damage to their reputations may reap financial rewards from higher margins, lower perceived risk, and cheaper capital, the report points out.

The survey also reveals that senior executives focus on five common areas:

• Compliance is playing such a prominent role in banking operations, the risk of noncompliance is becoming one that banks cannot afford to get wrong, according to the EIU.
• Banks need to do a better job of measuring and managing compliance risk.
• Performance appraisals, including return on compliance investments, is a nascent discipline that will likely grow in importance in the years ahead.
• Financial companies must integrate compliance activities with risk analyses throughout their enterprises.
• A culture of compliance is crucial for success.

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