Governance, Risk and Compliance

Geo-specific Complexities of Regulatory Compliance for Banks

December 14, 2022

As many large banks and financial institutions extend their operations and offerings globally, their regulatory compliance obligations increase in complexity, exposing your organization to a greater degree of compliance risk than ever before. Regulations change in the hundreds daily, and the geo-specific nuances in common compliance regulations for banks, like Anti-Money Laundering (AML), GDPR, NIST, and others, mean teams have little time to ramp up on regulatory compliance change management. This inevitably increases the cost of doing compliance well. 
But if you think doing regulatory compliance for banks is expensive, try being non-compliant. In 2020 alone, banks received a staggering $14.2 billion in regulatory fines globally. Failing to keep up with regulatory changes can result in unintentional noncompliance, which can be detrimental to your bottom line beyond the obvious financial repercussions. It can lead to serious reputational consequences, too.  
In this article, we’ll cover some key examples of geo-specific regulatory compliance complexity that make the work of compliance teams more challenging. Fortunately, new solutions simplify compliance risk management processes and efforts, delivering efficiency and accuracy and freeing up compliance teams to get out of the weeds and into results.   

Compliance frameworks and regulatory bodies 

At the root of regulatory compliance for banks is a desire to put customer information safety first while also reducing incidents of bank fraud and crime. In the U.S., banks need to be Sarbanes-Oxley (SOX) compliant, which came into law after the global financial crash of 2008. The Office of the Superintendant of Financial Institutions (OSFI) regulates and supervises domestic banks and foreign banks operating in Canada. Regulatory compliance for banks in the European Union are set by the European Banking Authority (EBA). With Brexit meaning the United Kingdom has left the E.U.. compliance teams need roll out what most are referring to as U.K. SOX, which brings Britain closer to U.S. federal banking regulations and protections in terms of audit and governance reform. 
Your compliance team’s ability to understand regional differences in regulatory bodies and how they affect governance is key to preventing compliance risk. But how do you deliver on compliance expectations at this rate of change and scale? 

Data transfer 

It’s one thing to be (Personal Identifiable Information) PII compliant in much of Europe by understanding and executing on regulatory requirements of the E.U.’s General Data Protection Regulations (GDPR). But what happens to those compliance obligations when you open an office in California, U.S.A.? Spoiler alert: You also need to observe the state regulations set by the California Consumer Privacy Act (CCPA).  
Not every state or country lets sensitive information, like PII, cross borders. Cross-border regulatory clauses state whether or not you can transfer sensitive data like account information abroad. It’s the responsibility of the company doing the data transfer to understand the laws and regulations of both their home country and the country where the information is meant to be sent before attempting any transfer or transaction. 

Know Your Customer (KYC) 

Designed to help prevent financial crime, money laundering, and the financing of terrorism, KYC refers to customer due diligence and vigorous client identification processes. International regulations are influenced by The Financial Action Task Force (FATF) and are then translated into national laws that lead to highly varied geo-specific KYC regulations.  
Banks have the sole responsibility for validating that a customer is who they say they are. As an organization’s global customer base and transactions grow — and as regulations expand to cover new ways of moving capital — the need to monitor regionally changing regulations in this space is critical.  

Cross-border banking and lending  

Let’s say you’re a U.S. lending institution attempting to initiate a transfer to a customer from France who needs the funds in Swiss francs. The U.S. bank must understand not only the regulatory compliance of the state they are operating in but also the regulatory restrictions of Switzerland when it comes to currency financing. 

Capital markets 

Increased capabilities for global trading mean if a Japanese trader wants to buy stocks in Shopify, a company listed on Canada’s TSX, the trader would have to consider compliance regulations in both countries.  
AML compliance regulations are increasing in this space. Any exchange of money and assets done in nano-seconds through technology is open to bad actors, leaving investment companies and banks with investing arms susceptible to complicity in money laundering. 

Structured financing 

Your Australian company may seek to finance a project in South Africa with shareholders/investors from Brazil and Norway, as well as Australia and South Africa. Given the transfer of funds between four countries, a careful understanding of financing regulations in each is a necessary responsibility of the company initiating the project. 

Don’t forget to do your due diligence 

In terms of cross-border regulatory compliance needs, do your due diligence to identify the nature of the parties involved in the transactions by asking: 

  • What are the nationalities of the persons and entities involved? 
  • Is this a situation where beneficial ownership should be considered?
  • Could the transaction reveal a conflict of interest due to ownership or control by Politically Exposed Persons?  

Set your team up for regulatory compliance success 

It’s not reasonable for most teams to help everyone reach the level of understanding that regulatory compliance for banks demands. Instead, appoint compliance officers to oversee specific teams’ regulatory compliance efforts and implement best practices. A clear compliance responsibility hierarchy makes it easier to break down your compliance structure and implement specific improvements.   
Appointing and engaging a dedicated compliance team will help you confidently work toward compliance. However, you can’t build an efficient regulatory compliance program on human resources alone, nor is that always fiscally viable. Information evolves too quickly. Instead, pair talented team members and compliance technology to track, prioritize, and map regulatory improvements and workflows. 
Resolver’s Compliance Management software solution provides compliance professionals with the confidence to provide an opinion of the organization’s state of compliance through meaningful data and increased visibility into all compliance efforts. Compliance professionals have insights into key risk areas and the ability to focus resources on addressing regulatory concerns. Simplified reporting makes communicating obligations and risks to the board a simple exercise. 
From automating regulatory change management to reducing compliance fatigue and giving teams the power to visualize their full regulatory compliance environment, our highlight flexible solution can grow and scale as your compliance program’s maturity does.  

Watch our webinar on Transforming Regulatory Complexity into Risk Intelligence to learn more about how Resolver lives up to its promise of “Compliance Made Simple.” 

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