To further strengthen the corporate governance framework of urban co-operative banks (UCBs), the Reserve Bank of India (RBI) on Monday said it is introducing certain principles, standards and procedures for compliance function in such entities under Tier-3 & 4 categories.
“The compliance function is an integral part of effective governance, along with internal control and risk management processes. UCBs under Tier-3 and Tier 4 categories shall treat the guidelines 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 RBI said in a circular.
Essentially, the compliance function would ensure strict observance of all statutory and regulatory requirements for these banks. UCBs with deposits of more than Rs 1,000 crore fall under the Tier-3 & 4 categories.
The compliance function is meant to assist the board of the UCBs and senior management in overseeing the implementation of compliance policy and identify the level of compliance risk in the organisation. The chief compliance officer (CCO) will be the nodal point of contact between the UCB and the regulators/supervisors and has to be a participant in the structured or other regular discussions held with RBI, the regulator said.
RBI has asked these UCBs to lay down a board-approved policy clearly spelling out its compliance philosophy, expectations on compliance culture, structure and role of the compliance function, the role of CCO, processes for identifying, assessing, monitoring, managing and reporting on compliance risk. The policy will be reviewed at least once a year, the central bank has directed.
RBI has also directed UCBs to conduct an annual compliance risk assessment in order to identify and assess major compliance risks faced by them and prepare a plan to manage the risks. It has mandated that the CCO cannot be given any responsibility which brings elements of conflict of interest, especially any role relating to business and the CCO cannot be a member of any committee which conflicts her/his role as CCO.
While the UCBs under Tier-4 category have put in place a board-approved policy and a compliance function, including the appointment of a CCO as per the RBI’s circular by April 1, 2023, the UCBs under Tier 3 category can implement the same latest by October 1, 2023.