Bank compliance: Rising regulatory expectations
Bank compliance: Rising regulatory expectations
Veteran bankers will remember a time when the compliance department was viewed as something of an irritation, and its pronouncements treated more as recommendations than as diktats. Those days are emphatically over.
Bank regulators now expect compliance capability to operate as a core control function embedded across the business. It is no longer a narrow “advisory” or box-ticking department.
The global financial crisis was a key event that catapulted compliance to the top of the banking agenda. This trend was accelerated by numerous conduct scandals, cyber threats, operational disruptions and, more recently, AI adoption. The consequence is that expectations of supervisor have become broader, more searching and much more outcome-focused.
Table of Contents:
- Compliance demands a risk-based approach
- Compliance function must be embedded
- Data key to effective compliance
- Compliance function demands evidence and outcomes
- Personal accountability and compliance
- Frequently asked questions
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Compliance demands a risk-based approach
A major regulatory expectation is that compliance capability must be risk-based. No longer do regulators accept vague and generic compliance frameworks that effectively treat all risks equally. Instead, firms are expected to identify, assess and prioritize the areas were customer harm, misconduct, regulatory breaches or financial crimes risks are greatest.
The corollary is that compliance resources should be allocated according to the likelihood and severity of risk. Hence, high risk products, vulnerable customers, complex distribution channels, outsourcing arrangements, or areas that are subject to a rapidly changing regulatory environment need to receive greater scrutiny and monitoring. Supervisors increasingly expect firms to demonstrate how risk assessments influence their compliance plans, testing programs, monitoring intensity and escalation procedures.
Compliance resources must focus where regulatory, customer, and financial crime risks are highest.
Compliance function must be embedded
The compliance department used to operate somewhat in isolation from various business units, risk management, operations, technology or internal audit. Regulators no longer tolerate this silo approach and insist the compliance capability be firmwide.
Compliance failures often rise from fragmented information flows and weak communication and coordination across functions. For these reasons, compliance should be integrated into product design, customer communications, operational processes, outsourcing procedures, digital transformation projects and strategic decision-making. Arising from that, senior management and boards should receive clear reporting on compliance risks organization wide rather than fragmented reports from separate departments.
Data key to effective compliance
Compliance needs to harness data to maximum effect. Regulators expect firms to use data analytics, management information, automated monitoring tools and real-time indicators to identify emerging risks and compliance failures. Supervisors expect firms to apply structured data analysis in order to monitor trends such as customer complaints, transaction anomalies, staff conduct indicators, fraud patterns, vulnerable customer outcomes and operational incidents.
No longer are compliance frameworks couched within annual exercises centered on periodic policy reviews and mandatory training refreshers. Instead, regulators expect compliance capability to be continuously updated rather than static. This reflects the fact that regulatory requirements, financial crime threats, cyber risks, digital products and customer expectations evolve continuously. Compliance is therefore a function that must adapt dynamically.
Regulators expect firms to use data continuously to detect emerging risks and failures.
Compliance function demands evidence and outcomes
The mere existence of policies and procedures is insufficient. Compliance programs are expected to be effective, and demonstrably so. Regulators are placing far greater emphasis on evidence and outcomes, and firms are expected to prove that their controls not only exist, but actually work in practice. This involves structure testing, monitoring, root cause analysis, remediation tracking and clear management reporting.
Management accountability has become a major focus area in recent years. In the past, compliance failures were routinely attributed to isolated staff actions. Today, regulators expect senior executives and boards to take ownership of compliance culture and regulatory risk. This accountability is now placed explicitly on named individuals. Boards are expected to challenge management effectively, understand compliance risks and ensure adequate resources are allocated to control functions.
Personal accountability and compliance
Greater personal accountability implies more attention on escalation frameworks and internal communication. Delayed escalation has featured in many enforcement cases. There should be a culture where employees are free to raise concerns without fear of retaliation and where red flags are not suppressed for commercial reasons.
Independent compliance monitoring is another key expectation. Regulators increasingly distinguish between first-line operational controls and second-line compliance oversight. Compliance must challenge the business rather than acting as passive advisors. Regulators are on their guard where compliance functions lack sufficient authority, independence or stature within institutions.
None of this is possible without adequate staffing, appropriate technical skills and sufficient access to systems and data. Regulators, therefore, scrutinise levels of compliance resources, technology and expertise.
Likewise, training expectations have risen sharply. It is no longer acceptable merely to provide annual generic compliance modules. Training must be targeted, role specific, and risk based, and tailored to employees actual responsibilities.
Senior leaders are expected to own compliance culture, escalation, and regulatory risk.
Frequently asked questions
What has changed in regulatory expectations for compliance?
Regulators now expect compliance to operate as a core control function embedded across the business. It is no longer treated as a narrow advisory department or a box-ticking exercise. Expectations have become broader, more detailed, and more focused on outcomes because of financial crises, conduct failures, cyber threats, operational disruption, and AI adoption.
Why does compliance need a risk-based approach?
A risk-based approach helps firms focus compliance effort where the greatest harm, misconduct, regulatory breach, or financial crime risk may arise. Regulators expect firms to identify, assess, and prioritize higher-risk areas rather than treating all risks equally. This means compliance plans, testing, monitoring, and escalation should reflect the likelihood and severity of each risk.
How should compliance be embedded across a firm?
Compliance should be integrated into business units, risk management, operations, technology, internal audit, product design, customer communications, outsourcing, digital transformation, and strategic decision-making. Regulators no longer accept a siloed approach because many compliance failures arise from weak communication and fragmented information flows. Senior management and boards also need clear organization-wide reporting on compliance risks.
Why is data important for effective compliance?
Data helps compliance teams identify emerging risks, failures, and changing patterns more quickly. Regulators expect firms to use analytics, management information, automated monitoring tools, and real-time indicators to track areas such as customer complaints, transaction anomalies, staff conduct, fraud patterns, vulnerable customer outcomes, and operational incidents. Compliance is expected to be continuously updated, not static.
What evidence do regulators expect from compliance programs?
Regulators expect firms to prove that compliance controls work in practice, not simply show that policies and procedures exist. This requires structured testing, monitoring, root cause analysis, remediation tracking, and clear management reporting. The focus is on evidence and outcomes, meaning firms must demonstrate that their compliance programs are effective and able to address real risks.
How does personal accountability affect compliance?
Personal accountability means senior executives and boards are expected to own compliance culture, regulatory risk, and escalation practices. Regulators expect named individuals to understand compliance risks, challenge management, and ensure control functions have enough authority, independence, resources, technology, and expertise. Employees should also be able to raise concerns without fear of retaliation or commercial pressure.
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