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In most industries, legal entities of a certain size and complexity must have a compliance function. Such requirement is either set forth by regulatory law or the governance rules of the relevant organisation. In the highly regulated credit industry, the role and responsibilities of the compliance function are more precisely defined than in other industries. This paper aims to analyse the personal accountability of senior compliance officers in a bank’s compliance function when there is a failure of proper compliance.

This paper is based on a keynote addressed at Jesus College, University of Cambridge, 7 September 2016. The author approaches the issue of senior compliance management by analysing development of international financial regulation with respect to legal requirements for compliance function. Subsequently, the author determines what constitutes senior compliance management and applies the various legal regimes to situations of compliance failures.

While the accountability of the chief compliance officer and deputy for compliance failures is not set forth in regulatory law, courts and scholars have acknowledged such personal responsibility exists resorting to principles of civil law (contracts or torts), criminal law or employment law. Approaches and questions for this legal analysis are similar in a civil law as well as in common law jurisdiction. The most relevant breach of contract of the chief compliance officer will be an omission to act (forbearance), i.e. the failure to properly organize the compliance function and/or to immediately report a compliance risk to the board.

Scholarly work in the law of compliance is still somewhat limited, thus the research also includes practitioners’ observations. The accountability of senior compliance management for compliance failures represents a growing trend in corporate governance to seek individual accountability for corporate misconduct; see, for example, US Department of Justice (DOJ) in its so-called Yates memorandum on “individual accountability for corporate wrongdoing”.

In incidents of non-compliance, banks and their compliance officers should be able to exculpate themselves if they can demonstrate proper organization of the compliance function.

The originality of this general review is to focus the analysis of accountability of senior compliance management on the credit industry and to consider latest developments in international financial regulation, such as the supervisory review and evaluation process (SREP) by the European Central Bank (ECB) in the single supervisory mechanism (SSM) or the corporate governance principles for banks by the Basel Committee on Banking Supervision (BCBS).

Compliance is defined as conforming to a rule, such as a policy framework, standard or law. Regulatory compliance encompasses all processes that require an entity to be aware of and conform to relevant regulations. As a result, organisation of compliance function remains complex due to the overwhelming set of compliance requirements that exert pressure on various business segments. This report aims to investigate how banks and financial services firms are responding to the regulatory-driven changes to the current compliance landscape, with particular attention paid to nascent challenges and structural changes affecting the organisation of compliance.

The current research project is based on in-depth, semi-structured interviews with five universal banks and three financial services firms to pursue the best practices of adapting to the accelerating change in the regulatory-driven compliance landscape.

In the aftermath of the global financial crisis, banks and financial institutions across the globe have been required to adapt to numerous regulatory reforms that are exerting increased pressure on compliance functions. Amid recent events of multi-million fines to banks that displayed flawed surveillance systems and control failings, the changing regulatory landscape has shown that the relationship with the regulators and compliance with the new regulatory frameworks is a difficult process even for the tier-1 global banks.

Embarking on a peer review of the structures, roles, strategies and responsibilities of different compliance functions across banks and financial services institutions, this paper provides advice to financial institutions on ways of dealing with the complex emerging issues to ensure that the regulatory and compliance arrangements do not turn detrimental. At this point, the paper recognizes that the precise design of a compliance function will vary across individual banks and financial services firms. Nonetheless, this paper addresses the root issues and characteristics that are commonly shared despite the differences in organisations of compliance.

The Basel Committee on Banking Supervision under the auspices of the Bank for International Settlements (BIS) published a consultation paper in late 2003 on the compliance function in banks. The aim of the consultation paper is to set out the views of banking supervisors and provide basic guidance for banks. Whereas there is no attempt to prescribe a uniform approach, a clear set of general principles is laid down for the role of the compliance function within banking organisations. Furthermore, recognition is given to the fact that diversity exists between banks with respect to their internal organisation of the compliance function and also to diversity in the legal and regulatory environment affecting the compliance function across jurisdictions. The core objectives of this paper are to examine the BIS approach to the compliance function and look at how this is likely to evolve. The authors draw on experience from the UK life assurance industry where substantial inroads have been made to embed a compliance competent culture within such types of financial institutions. A partnership approach is highlighted as essential to achieving a viable and meaningful compliance function. Finally, an ethical approach is explored as the possible future direction for banks. The first section reviews the new principles for the compliance function; the second section describes issues that arise; the third section analyses a partnership approach and explores an ethical approach; and the final section provides a summary and conclusion.

This paper aims to explore how the understanding of the concept of compliance as its own risk category and the role of compliance as a separate internal banking function developed during the central and eastern European (CEE) region’s restoration of the banking systems, both parallel to and as a part of their transition process from their centrally planned economies to market economies, with special focus on the case of Hungary.

The paper discusses the transition within CEE and the reconstruction of their banking systems, including that of money and the capital market and the law-abidingness of the banking sector, the role of its reputation, compliance and customer relationships, compliance after 2005, the Bank of International Settlement principles and their implementation, a Hungarian compliance survey conducted in 2009 and future challenges in the field of compliance.

There is still not a globally or continentally accepted “best” practice in the field of compliance. It is under these circumstances that banking systems must face the challenges of this new epoch of increasing migration and cybercrime.

This paper presents the development of compliance in CEE, with special focus on Hungary. The article was written by employees of the Hungarian Banking Association, put together with the help of the vast experience they gained throughout their careers in the banking sector.

The purpose of this paper is to discuss rise and growth of the “compliance industry” in Belgium by looking at the reasons why this industry became such an important element in the battle against money laundering. The “compliance industry” represents the commercial market that surrounds the battle against money laundering. We aim to map this industry and want to explore how this industry fits in the battle against money laundering.

This paper represents the final phase of a PhD research, studying the origins of battle against money laundering and the private actors within this battle, the compliance officers. The research starts from a criminological point of view. This paper is based on a survey of compliance officers and interviews with both compliance officers and members of the “compliance industry”.

The compliance industry is a booming industry on the market on anti‐money laundering. Their services are mainly focused on software packages, advice, training and consultancy. Although this industry has grown as a result of legislation and regulation, there are some problems, mainly related to privacy issues.

For this paper, only a limited amount of corporations within the compliance industry were interviewed, which may result in an incomplete picture of this industry.

Belgium implemented a regulatory framework in 2001, obliging the installment of a compliance function within banks. The value of this research lies in the fact that neither this booming professional group, nor the surrounding market (including the compliance industry) has never been subject of research before.

This paper aims to analyze the role of compliance in Italian banking system and to verify its efficiency in terms of protection of stability and credibility of financial institutions, comparing solutions adopted in other European countries.

The research uses a comparative approach by examining the different solutions adopted in other European countries for finding analogies and differences between them.

The research has discovered a smaller development of Compliance Function in Italian banks, whose compliance risk frameworks are often still in an experimental stage rather than in other systems banks.

A uniform model in the structure of financial institutions can be adopted to enforce the effectiveness of national regulations.

To ensure the independence and effectiveness of the Compliance Function, the financial institutions, especially the Italian ones, must pay great attention to the essential elements for good practices, such as a clearly defined apportionment of responsibilities and unambiguous reporting.

The compliance culture must successfully reinforce itself in Italian firms, and for this purpose, it is necessary to persuade senior management that compliance is not a cost that should be minimized.

The Italian regulatory framework concerning the Compliance Function has represented a challenge for the banking industry, which should undergo a reorganization process focused on a different way of allocating responsibilities, so different solutions to the problem can be found by national legislators who need to be coordinated at an international level.

The purpose of this paper is to provide an extension of a previous study by the author into compliance by Islamic banks in Bahrain with accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

A number of compliance indexes are constructed to better understand compliance by the sample banks. The use of multiple indexes addresses methodological shortcomings identified in the previous study.

Compliance is found to be higher for some Islamic issues than for others. In a relative sense, compliance is found to be similar to that for the region with standards issued by the International Accounting Standards Board.

The sample is limited to Islamic financial institutions in Bahrain. This is necessitated by the lack of adaptation elsewhere. The relatively high compliance found in Bahrain suggests broader adoption would be successful and would contribute to the overall regulation of the Islamic financial sector.

The AAOIFI has existed for over 20 years, but little empirical research had been conducted into compliance with the standards developed by this body. This paper, along with the previous study by the author, helps address this gap.

The authors' paper aims to examine the organizational issues that come from the recent establishment of the compliance function in Italian banks.

The authors' paper takes as a starting point the Bank of Italy's regulations and the existing literature on compliance, in order to create a theoretical model of an efficient internal control system.

For each organizational structure of compliance, the authors' paper describes strengths and weakness. It also outlines the scopes of compliance and internal audit in order to avoid overlaps. Having regard to the similarities between operational risk and compliance risk, the study identifies cooperation areas so as to achieve synergies, in terms of costs, and a better operational efficiency.

The authors' paper focuses mainly on the relationship between compliance, on one side, and internal audit and risk management on the other. It focuses also on the positioning of compliance within the internal control system, as it has been regulated by the Italian disposals. Further research could concern the relationship with other functions and the regulations of other countries.

The authors' paper identifies cooperation forms between the internal control system functions. This is the way to suggest organizational solutions able to improve banking efficiency.

This subject has not been analyzed in depth to date. This article attempts to obtain an identification of the roles and responsibilities of the main functions involved in the internal controls system, in order to define organizational models characterized by complementarity of interventions and thus oriented towards the objectives of effectiveness and efficiency.

This paper aims to examine the compliance of disclosure with the financial accounting standards of the Accounting and Auditing Organisation for Islamic Financial Institutions’ (AAOIFI) related to Islamic financing products by Islamic banks in Bahrain and Qatar.

The study measures compliance using disclosure indexes. The disclosure indexes include the three financial accounting standards of Murabaha, Mudaraba and Musharaka. The data are collected from the annual reports of 24 Islamic banks in Bahrain and Qatar over a period of 2012-2015.

The paper found that Islamic banks in Bahrain and Qatar comply with AAOIFI financial accounting standards related to Murabaha, Mudaraba and Musharaka. However, there was a level of non-compliance in both countries. In addition, it found that the extent of compliance had increased over the 2012-2015 period. Also, the Murabaha standard had the highest mean of compliance. Moreover, the results showed that the Islamic banks in Qatar tend to have more compliance of overall Murabaha and Mudaraba disclosures compared to the Islamic banks in Bahrain.

The findings are preliminary and highlight that the issue is of high interest to Islamic banks and AAOIFI. Hence, it requires a detailed follow-up to form a complete picture that would assist AAOIFI and regulators gear their policies toward better quality disclosure by Islamic financial institutions. Even though the findings are encouraging, future research is recommended to enforce compliance with the AAOIFI financial accounting standards.

This is a pioneer empirical study that focuses on the level and trend of compliance with AAOIFI financial accounting standards related to the Islamic financing products of Murabaha, Mudaraba and Musharaka standards, especially in Qatar. Additionally, it is the first study comparing between the only two Gulf Cooperation Council (GCC) countries, i.e. Bahrain and Qatar, that mandatory apply the AAOIFI standards.

The Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Thematic Review of Banking & Insurance sectors conducted by Bank Negara Malaysia (BNM) in 2013 indicated that oversight functions are still inadequate in the areas of compliance, internal audit, board of directors and senior management. The oversight functions refer to the AML/CFT compliance programme, which financial institutions, including Islamic banks, are obliged to execute as a part of mitigating activities against money laundering and terrorist financing. The main purpose of this chapter is to analyse whether there is any improvement in the oversight functions at the Islamic banks in Malaysia since the release of the thematic review report by BNM on 17 September 2014. This research is important as penalty for non-compliance under Section 22 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA) is severe. Section 22 of AMLATFPUAA entails personal responsibility on the compliance officer of an Islamic bank and not the reporting institution as a whole. Qualitative research method via interview is employed to gauge the extent of Islamic banks’ adherence to AML/CFT compliance programme. This chapter is significant as it provides Islamic banks and future researchers with the details of the compliance study as well as the current status of AML/CFT compliance programme within the Islamic banks in Malaysia.