The Hindu Business Line : `Bank boards must check for compliance'

The board of directors of banks will be responsible for ensuring that an appropriate compliance policy is in place to effectively manage compliance risk faced by banks, said the Reserve Bank of India in a notification issued on Thursday.

Compliance includes strict observance of all statutory provisions contained in various legislations and also following the guidelines issued by organisations such as Indian Banks' Association, Foreign Exchange Dealers' Association of India, Fixed Income Money Market and Derivatives Association of India and so on, it said.

The circular says, "A number of instances of non-compliance and lack of proper interpretation of regulatory guidelines are being reported in successive RBI inspection reports."

Recently the RBI had penalised several banks for violating Know Your Committee norms and for violating rules on CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements.

It has asked bank boards to ensure that compliance issues are resolved effectively and expeditiously by senior management with the assistance of compliance staff. The board may set up a separate board or committee for this purpose, which should review compliance function on a quarterly basis. The board should also review the compliance policy of the bank annually, which will outline the bank's philosophy, role and set-up of the compliance department and specific responsibilities of the staff.

A compliance department should be set up at the head office of the bank or in the case of foreign banks, it should be at the banks' principal office in India. The compliance staff should be trained in new products and services as well as in areas of corporate governance, risk management and must also have fair knowledge of law, accountancy and information technology, in order to carry out their duties effectively.

The chief compliance officer should be the nodal point of contact between the bank and regulator.

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