The NAFCU Journal January-February 2020 - 36

COMPLIANCE CENTRAL

Compliance Risk and
Compliance Culture
By Alma Calcano

C

ompliance failures can lead
to catastrophic consequences
for a credit union. Regulatory violations can result in
costly fines and civil penalties, which
could - in the worst-case scenario
- take an institution out of business.
The implementation of a successful
compliance program tailored to each
individual credit union, which effectively addresses management of risks, is
fundamental. Even though compliance
does not eliminate risk, it can reduce
the likelihood that violations of rules
and regulations occur. Compliance
risk management and a credit union's
culture of compliance at first glance
may seem to be the same or to have
some similarities. Understanding these
concepts and the relationship between
them is crucial for the successful operation of a credit union.

Compliance Risk

Compliance risk, one of the seven
areas of risk the NCUA expects credit
unions to manage, is "the current
and prospective risk to earnings or
capital arising from violations of, or
nonconformance with, laws, rules, regulations, prescribed practices, internal
policies and procedures or ethical
standards." (See NCUA Online Examiner's Guide, Chapter 1, "Risk Categories.") Put more simply, it is the threat
that noncompliance can harm a credit
union. From the NCUA's perspective,
the scope of possible compliance risk
is very broad, as it can come from
laws, rules and regulations, internal
policies or procedures and contractual
36

obligations. The NCUA expects credit
unions to manage this risk through
risk identification, measurement,
control and monitoring.
Properly identifying sources of compliance risk requires giving attention
not only to various external sources
of law to ensure that a credit union is
in compliance with the law's requirements, but also to all credit union
business activities. A strong culture of
compliance plays an important role in
measuring and monitoring compliance
risk in all business activities and in
ensuring these activities fit within the
credit union's identified risk appetite.
It also promotes a culture of "see something, say something" within the credit
union's staff, which helps management identify areas where additional
controls may be necessary or where
compliance violations exist.

Culture of Compliance as
a Risk Management Tool

Establishing a culture of compliance
can also be a tool for managing this
area of risk. While many regulators
have openly spoken about the need
for a "culture of compliance," none,
including the NCUA, has articulated
a formal definition of the phrase. A
culture of compliance could be defined
as the attitudes and behaviors exuded
by leadership and staff within a credit
union as related to compliance.
While the NCUA may not have formal
guidance, FinCEN issued guidance
on promoting a culture of compliance

around the Bank Secrecy Act in its
Advisory FIN-2014-A007, released Aug.
11, 2014. The guidance outlines ways a
credit union can strengthen or reinforce
a culture of compliance. These ideas can
be applied in general, and they include
the following actions:
1. Leadership should be engaged, using a
top-down approach.
2. Compliance should not be compromised
by revenue interests.
3. There should be open communication,
with information shared throughout
the credit union.
4. Leadership should provide adequate
human and technological resources
and training.
5. The effectiveness of the culture of
compliance should be tested
or assessed.
A strong buy-in from all levels of a
credit union - from the board of
directors and senior management to
staff members on the front lines - is
critical when managing compliance
risk. A strong compliance culture
aids in ensuring that a credit union
operates safely and soundly, as it can
facilitate addressing and controlling
the specific risks the credit union
identifies. For example, in some
situations laws and regulations are
lacking, which can leave a credit union
operating in a gray area, as when a new
technology is not anticipated in the
existing rules. An employee operating in a culture of compliance would
make an informed decision, taking
into account existing rules and internal

THE NAFCU JOURNAL  JANUARY-FEBRUARY 2020



The NAFCU Journal January-February 2020

Table of Contents for the Digital Edition of The NAFCU Journal January-February 2020

The NAFCU Journal January-February 2020
Contents
Conferences
From the Chair
2020 Advocacy Priorities
The Bottom Line
Leadership Download
Warning: Speed Bumps Ahead
Stepping Into 2020
2020 Vendor Directory
Executive Spotlight
Management Insight
Compliance Central
Inside NAFCU Services
From the President’s Desk
The NAFCU Journal January-February 2020 - The NAFCU Journal January-February 2020
The NAFCU Journal January-February 2020 - Cover2
The NAFCU Journal January-February 2020 - Contents
The NAFCU Journal January-February 2020 - 2
The NAFCU Journal January-February 2020 - Conferences
The NAFCU Journal January-February 2020 - From the Chair
The NAFCU Journal January-February 2020 - 5
The NAFCU Journal January-February 2020 - 2020 Advocacy Priorities
The NAFCU Journal January-February 2020 - 7
The NAFCU Journal January-February 2020 - The Bottom Line
The NAFCU Journal January-February 2020 - 9
The NAFCU Journal January-February 2020 - Leadership Download
The NAFCU Journal January-February 2020 - 11
The NAFCU Journal January-February 2020 - Warning: Speed Bumps Ahead
The NAFCU Journal January-February 2020 - 13
The NAFCU Journal January-February 2020 - 14
The NAFCU Journal January-February 2020 - 15
The NAFCU Journal January-February 2020 - 16
The NAFCU Journal January-February 2020 - 17
The NAFCU Journal January-February 2020 - Stepping Into 2020
The NAFCU Journal January-February 2020 - 19
The NAFCU Journal January-February 2020 - 20
The NAFCU Journal January-February 2020 - 21
The NAFCU Journal January-February 2020 - 22
The NAFCU Journal January-February 2020 - 2020 Vendor Directory
The NAFCU Journal January-February 2020 - 24
The NAFCU Journal January-February 2020 - 25
The NAFCU Journal January-February 2020 - 26
The NAFCU Journal January-February 2020 - 27
The NAFCU Journal January-February 2020 - 28
The NAFCU Journal January-February 2020 - 29
The NAFCU Journal January-February 2020 - 30
The NAFCU Journal January-February 2020 - 31
The NAFCU Journal January-February 2020 - 32
The NAFCU Journal January-February 2020 - 33
The NAFCU Journal January-February 2020 - Executive Spotlight
The NAFCU Journal January-February 2020 - Management Insight
The NAFCU Journal January-February 2020 - Compliance Central
The NAFCU Journal January-February 2020 - 37
The NAFCU Journal January-February 2020 - Inside NAFCU Services
The NAFCU Journal January-February 2020 - 39
The NAFCU Journal January-February 2020 - From the President’s Desk
The NAFCU Journal January-February 2020 - Cover3
The NAFCU Journal January-February 2020 - Cover4
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