In a letter written to the Chairman and Managing Director of Urban Co-operative Banks under the heading “Compliance Function and Role of Chief Compliance Officer (CCO)”, RBI says it has decided to introduce certain principles, standards and procedures for Compliance Function in UCBs, keeping in view the principles of proportionality.
The Circular which mandates appointment of Chief Compliance Officer, among others shall be applicable to all UCBs under Tier 3 and Tier 4 categories except UCBs under Directions. UCBs under Tier 1 and Tier 2 categories shall continue to be governed under the existing guidelines, clarifies the RBI notification.
The Circular says the UCBs under Tier 4 category shall put in place a Board-approved policy and a Compliance Function, including the appointment of a Chief Compliance Officer (CCO), based on the Framework given in the Annex by the RBI, latest by April 1, 2023. The UCBs under Tier 3 category shall implement the same latest by October 1, 2023.
This Circular shall be placed in the next meeting of the Board of Directors for information and devising an implementation strategy, under the Board’s supervision, in a time-bound manner.
RBI says that the Compliance Function is an integral part of effective governance, along with the internal control and risk management processes. The UCBs under Tier 3 and Tier 4 categories shall treat the guidelines in the Circular as a set of minimum guidelines only and
accordingly frame their own guidelines taking into account their corporate governance framework, the scale of operations, risk profile, organisational structure and code of conduct, etc.
The Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss of reputation a UCB may suffer, as a result of its failure to comply with laws, regulations, rules, and codes of conduct, etc., applicable to its activities, underlines RBI.
RBI says the Compliance Function shall ensure strict observance of all statutory and regulatory requirements for the UCB, including standards of conduct, managing conflict of interest, treating customers fairly and ensuring the suitability of customer service.
The Chief Compliance Officer (CCO) shall be a member of the ‘new product’ committee. All new products shall be subjected to intensive monitoring at least for the first six months of introduction to ensure the indicative parameters of Compliance risk are adequately Monitored, reads the Circular.
The Compliance Function shall monitor and test Compliance by performing sufficient and representative Compliance testing, and the results of such Compliance testing shall be reported to the Senior Management. It shall periodically circulate the instances of
Compliance failures among staff, along with the required preventive instructions. Staff accountability shall be examined for major Compliance failures.
The CCO shall be the nodal point of contact between the UCB and the regulators / supervisors and shall necessarily be a participant in the structured or other regular discussions held with RBI. Further, compliance to RBI inspection reports shall be communicated to RBI necessarily through the office of the Compliance Function.
In some UCBs, there may be separate departments / divisions looking after compliance with different statutory and other requirements. In such cases, the departments concerned shall hold the prime responsibility for their respective areas, which shall be clearly outlined. Adherence to applicable statutory provisions and regulations is the responsibility of each staff member. However, the Compliance Function would need to ensure overall oversight.
