and Procedures - Not Just a Throw-Away
By James DeFrantz,
Oftentimes, the compliance officer will offer apologetically something like “the policies are currently being re-viewed and re-written” or “we really depend on the experience of our staff more than the policies and procedures” as an explanation for the poor state of the policies and procedures.
While it is understandable
that the business of conducting business on a daily basis must be the priority
of banks staff, it is also the case that comprehensive and clear policies and
procedures are an essential part of a strong compliance program.
One of the Pillars of a
Strong Compliance Program
The components of a
compliance system include training, internal audit, information systems and the
policies and procedures established by the board of directors. As regulators are
making this assessment, they weigh heavily the extent to which the board is
aware of the business environment in which the bank operates as well as the
business plan that has been established. It is the bank’s policies and
procedures that documents the board’s synthesis of these two concepts and
directs senior management and staff on parameters for successful operations.
Ultimately, without strong
and dynamic policies and procedures, a strong compliance system is unattainable.
Staff may conscientiously and diligently collect information, complete
training and perform audits, but without a clear directive from the Board, they
do so based on their own understanding of what is important.
Further, it is a good
practice to review policies and procedures on a regular basis to ensure that
they reflect the current business practices of the bank. Many problem banks have
as one of their problems, policies and procedures that have not been updated for
several years and no longer reflect the current practices of the bank.
Though it is virtually
impossible to cover each and every variation of a transaction that is possible,
a good rule of thumb is to write policies and procedures that would allow an
entry level employee to understand his/her duties and responsibilities.
Procedure manuals that are merely a copy of a regulation do little to give
guidance to the staff member who is trying to figure out how to process a wire
In addition to being clear,
policies and procedures should be dynamic. The banking industry continues to go
through significant regulatory change and as a result, policies and procedures
must be flexible and dynamic.