ABA Banking Journal - June 2014 - (Page 32)

cover story COMPLIANCE Lines of defense built on good common sense hey say there are 43 quintillion ways to arrange a Rubik's Cube, the three-dimensional puzzle that turned 40 in May. So many variations-yet there is only one correct solution. Controlling risk in all its forms can seem a puzzle, too, but for bank leaders and the specialists in risk management, legal, compliance, and audit whom they rely on, the shape of the solution-unlike a Rubik's Cube-won't necessarily look the same from one institution to another. The task is far more challenging than twisting a plastic puzzle into place. To assemble their "cube," bankers have various elements to adjust: control functions, like risk management and compliance, and principles developed by bankers, specialists, and regulators over decades, but especially over the last one. Changing expectations In January, the Comptroller's Office released proposed guidelines on heightened expectations for risk management, internal audit, and governance-incorporating the "three lines of defense" concept-in very large national banks, and, potentially, for any institution deemed complex enough to warrant application. The agency's blueprint gets complex pretty quickly, and in some ways reads like a risk management manual-as a regulator would write it. Some facets have become controversial, and OCC promised to carefully consider the industry's comments. But the basic concept applies quite broadly. In some ways, experts in risk, compliance, and governance say the three lines have been part of the general nature of these disciplines, to one extent or another, for some time. Going forward, they argue, the key is to avoid too much uniformity or rigidity in implementing the concepts-especially as all component bank functions, mostly notably compliance, continue to evolve in scope and role. 32 | ABA BANKING JOURNAL | JUNE 2014 While OCC's proposal occupies center stage now, this is an issue of interest to banks of all sizes, in principle. There are concepts that apply to risk management and compliance anywhere, for instance. And there is concern that elements of large bank requirements slowly move down. "Trickling down is a legitimate concern," says Tim Burniston, vice-president and senior director, professional services and consulting, Wolters Kluwer Financial Services. Burniston, a former senior compliance regulator at the Fed and FDIC, adds that this concern has been there all along. "We all know that once these kinds of things go into play, they become the expectations," says Elizabeth Snyder, who formerly headed compliance and risk management at a Chicago-area community bank. "It won't happen right away, but things will become tougher." Snyder is senior manager in charge of the regulatory compliance team at Plante Moran, the accounting and business advisory firm. At one time, enterprise risk management was just for big banks, but in recent years, examiners increasingly expect community banks to adopt at least elements of it. OCC's proposal stirs the pot The mission of the OCC proposal is not something anyone argues about. In a recent speech, Comptroller Tom Curry stated that, "The job of a risk governance framework and the three lines of defense is to ensure that the bank has an effective system to identify, measure, monitor, and control risk taking, and to ensure that the board of directors has sufficient information on the bank's risk profile and risk management practices to do their job, providing management with effective direction and advice." The proposal has focused industry attention on the need for controls on risk at multiple levels with an emphasis on independence to avoid compromising controls. PHOTOS: SHUTTERSTOCK.COM T By Steve Cocheo, executive editor & digital content manager http://www.SHUTTERSTOCK.COM

Table of Contents for the Digital Edition of ABA Banking Journal - June 2014

Chairman's View
Editor's Column
The Economy
Bank Notes
Picture This
Affordable housing pioneer
Pass the Aspirin
Tech Topics
Lines of defense
Top performing community banks
Compliance Clinic
Compliance Inbox
Around the ABA
Legal Issues
First Person

ABA Banking Journal - June 2014

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