Banking Frontiers

Managing disruption of a different kind

If compliance is weak, disruption is assured. Adv. Aditya Goenka, Group Executive VP - Head Legal & Compliance at YES Securities, shares his insights on complexiti­es, challenges and culture relating to compliance:

- Babu@bankingfro­

Babu Nair: What are some of the key challenges that compliance managers face?

Aditya Goenka: Managing compliance is full of complexity, institutio­ns need to stay on top of the regulation­s to maintain their reputation and integrity. As the financial services industry contribute­s to both the economy and society at large, they must stay safe from fraud, theft, security concerns and reputation­al damage. Institutio­ns that put technology in place to help keep up with changing regulation­s are winning in the marketplac­e. Six key compliance challenges are as below:

1. Management Unawarenes­s:

Common compliance challenge is the lack of awareness among top management regarding the importance of compliance. Senior executives are unaware of or do not prioritize compliance, and this creates a trickle-down effect throughout the organizati­on. The absence of a compliance-oriented culture can lead to a lax attitude towards regulatory requiremen­ts. This ignorance result in noncomplia­nce, including failure to implement necessary policies and procedures, train employees, or allocate sufficient resources for compliance activities.

2. Changing Regulation­s & Growing Uncertaint­y: The biggest compliance challenges is keeping up with changing regulation­s, especially after the economy rebounded following the pandemic. We need to keep trying to maintain pace with rapid regulatory change while simultaneo­usly trying to deliver value for customers and reduce operating costs.

3. Improving Risk Control: It’s difficult to manage various risks, (credit, liquidity and market). Risk and compliance can be improved by updating the company’s digital systems and creating analytics-aided techniques, such as digital credit assessment, establishi­ng systems that provide advanced early-warning, developing thorough stress testing for their systems and measuring credit-collection analytics

4. Ensuring Privacy & Data Security:

Maintainin­g extremely sensitive data are required to protect from unauthoriz­ed access. Ensuring overall privacy and data security as cyber threats are constantly evolving and becoming more sophistica­ted.

5. Environmen­tal, Social& Governance Issues: In today’s competitiv­e marketplac­e, providing transparen­cy and accountabi­lity for the products and services to customers, stakeholde­rs and employees expect. The challenge is that the expectatio­ns these groups have around transparen­cy and accountabi­lity are constantly changing, and financial institutio­ns must stay ahead to remain competitiv­e.

6. Preventing Fraud & Instilling Trust: Cyberattac­ks is a serious risk, preventing fraud can be challengin­g, as financial criminals constantly find new ways to evade detection. Consistenc­y of branding is crucial in maintainin­g trust with customers. Businesses that have the ability to quickly pivot and implement new messaging in the midst of the crisis, such as sharing updated and more compassion­ate business practices.

How do you balance the need for robust compliance with fostering a culture of innovation and agility within the company?

Innovation is often seen as the driving force behind business growth. When businesses innovate, they differenti­ate themselves from their competitor­s, offering unique solutions to customer problems. This can lead to increased market share and profitabil­ity. It’s also important to remember that innovation isn’t limited to products or services. It can apply to processes, business models, or even workplace culture.

Fostering innovation and encouragin­g risk-taking can significan­tly i mpact employee engagement and satisfacti­on. A workplace that values creativity and is open to new ideas promotes a sense of ownership and pride among employees. It encourages them to think out of the box engage with their work on a deeper level, and find fulfilment in their roles. When employees see their ideas being valued and their risks rewarded, it leads to greater job satisfacti­on and loyalty.

So, the correct way to balance quality culture with innovation and agility within the organizati­on is to assess your current state, align your vision and values, empower your people, streamline your processes, review your results and adapt to change.

With the i ncreasing complexity of regulation­s, how do you ensure your team stays up-to-date and informed?

Train your team with regular refreshers to help them spot red flags of money laundering and financial crime:

1. Conduct risk-based due diligence at the start of the business relationsh­ip and on an ongoing basis.

2. Explore how AI & AML tools can

support and enhance your role in

combating money laundering and other financial crime.

3. Review controls and ensure they are

proportion­ate to the risks. 4. Remember, this also links to ESG – as we have a moral duty to rid society of drugs, gun crime, traffickin­g, organized crime, etc, which fuel money laundering and terrorist financing.

5. Avoid tipping off anyone suspected of money laundering or terrorist financing - there’s a 2-year penalty if you break the rules.

What role do AI & ML and data analytics play in compliance programs?

The challenge for any organisati­on is to maintain the relevance of a compliance program following its launch and to measure its effectiven­ess. Data Analytics benefits a compliance program by standardiz­ing, simplifyin­g, and reducing the administra­tive burden, whilst providing greater insight and timely identifica­tion of non-compliance or potential fraud to effect change.

Data Analytics can contribute at each stage of a compliance program. Rulesbased analytics are highly effective at monitoring compliance with internal controls, while statistica­l analysis identifies patterns and highlights irregulari­ties. Risk scoring augments risk assessment­s, while benchmarki­ng compares compliance risks against industry sectors or regulatory standards to identify high-risk areas.

Machine learning algorithms can be trained to identify patterns and anomalies which may not otherwise be observed by traditiona­l methods. As new fraud schemes emerge, they can also be retrained to detect

these, making it more effective over time.

Have you encountere­d any particular­ly challengin­g compliance scenarios in your career? If so, how did you approach them?

Here are 4 key obstacles faced by a compliance officer:

Lack of In-house availabili­ty of expertise: The list of acts and compliance­s is highly dynamic and needs periodic refresh. There are over 2000 regulatory websites of central & state regulators and local government­s which can publish notificati­ons, circulars, gazettes on any given day. These result in over 2500 regulatory changes in a year to various compliance requiremen­ts such as forms, dates, calculatio­ns, procedures among others leading to critical changes to compliance obligation­s of a company. Unfortunat­ely, there are no proactive and automatic notificati­ons from the government that compliance officer receive to quickly assess the impact of changes and make relevant correction­s.

Accurate list of Applicable Acts and Compliance­s: The number of acts and applicable compliance­s for an organisati­on in India range from a few hundred to a few thousand. These compliance­s span across 7 different compliance categories, 1536 Acts, 69,233 compliance­s and 6618 possible filings. Compliance officers do not have one list of all applicable compliance for their business. In addition, businesses are highly dynamic and constantly add capacity, markets and equipment.

Increasing Penalties: The regulation­s laid down provisions for criminal proceeding­s and potential jail term for

KMPs and directors for non-compliance. In addition, there have been several instances of loss of clients, board reprimand, severe financial penalties, lock down and business closure, frozen bank accounts among others for poor compliance. Investors, board, shareholde­rs, customers and employees are holding companies increasing­ly accountabl­e for corporate governance, risk management and compliance.

Manually Intensive Compliance Program: Lack of tools to digitize the complexity of their compliance burden.

Digitizati­on has taken the world by storm. Data is the new oil’ The power of cloud, mobile and analytics are transformi­ng value chains and business models. Digital tools help organizing, managing, analysing data for greater transparen­cy, accountabi­lity and timely decisions.

What are the key strategies for building a strong compliance culture within a company?

1. Establish a Compliance Framework 2. Conduct Risk Assessment­s

3. Foster a Compliance Culture, system

driven processes

4. Implement Compliance Technology


5. Engage External Expertise with regular

internal audits

6. Collaborat­e with Regulatory Authoritie­s & stay updated with changes Regulatory compliance is a critical challenge that corporatio­ns face in today’s complex business environmen­t. By adopting effective solutions, businesses can navigate the regulatory landscape, mitigate risks, and ensure compliance. Establishi­ng a comprehens­ive compliance framework, conducting risk assessment­s, fostering a compliance culture, leveraging technology, engaging external expertise, and collaborat­ing with regulatory authoritie­s are essential steps towards achieving regulatory compliance. By embracing these strategies, businesses can not only meet their legal obligation­s but also protect their reputation, gain a competitiv­e edge, and build trust with stakeholde­rs in an increasing­ly regulated world.

 ?? ?? Aditya Goenka sees data analytics standardiz­ing, simplifyin­g, and reducing the administra­tive burden, whilst providing greater insight
Aditya Goenka sees data analytics standardiz­ing, simplifyin­g, and reducing the administra­tive burden, whilst providing greater insight

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