Muhammad bin Ibrahim: A broader view of compliance in banking and financial sectors Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at Bank Negara Malaysia's Compliance Conference 2017, Kuala Lumpur, 18 May 2017. * * * The topic of compliance has become a widely discussed topic in recent times, often headlined by massive regulatory fines slapped on financial institutions for compliance failures. Banks globally are estimated to have paid over USD320 billion in regulatory penalties since the global financial crisis for multiple failures ranging from market manipulation to money laundering and conduct failures. On the bright side, these fines signal a continued, if not increased, priority given by authorities to strong enforcement. But the fact that such failures occurred at all, and were allowed to reach such extensive proportions to the detriment of the public, should worry us. There is no doubt that the compliance burden has increased significantly. And for good reason. Even though the debate will continue to rage on over the relative benefits and costs of compliance, it is unlikely this question will be settled in the foreseeable future. Given our experiences from the various discoveries that institutions continue to push the boundaries of what constitutes a fair and ethical practice, there is clear evidence that we need to do more to improve compliance. The industry has made some important strides.
Culture can be an abstract concept, but the simplest way to describe it is how a bank employee will behave when there is little threat of “being caught”. This is also sometimes referred to as “soft laws”. The compliance function can help to shape and internalise “soft laws” through an effective monitoring and assessment framework. With a pulse on the ground, it also provides an important feedback loop to senior management and the board on actions that can be taken to reinforce a strong tone from the top. Compliance officers can also galvanise broader industry initiatives, working with bodies like the Financial Services Professional Board to develop constructive codes of ethics and conduct for the industry and encouraging their adoption. Earlier, I alluded that the compliance function can be a strategic business proposition. But this can only be achieved through sufficient investment in capacity building in the compliance function, in terms of both systems and resources. One aspect that tends to be overlooked by institutions in managing compliance risk is the importance of effective channels for communication and information flows between various control functions and the business departments. The closer the cooperation between various functions within the bank, the easier it is to share relevant information and the higher the chances for an early identification of risks. This will improve the quality and promptness of the bank’s response to any occurrence of risk or non-compliance. It is also crucial that institutions invest sufficiently in talent development within the compliance function.