RBI noted that regulated entities have adopted varying levels of automation to support the internal compliance monitoring function, ranging from the use of macro-enabled spreadsheets to workflow-based software solutions | Photo Credit: porcorex

The Reserve Bank of India (RBI) has advised regulated entities (REs) to utilize technology effectively to improve the internal compliance monitoring function.

This directive follows a review that indicated automation of the compliance monitoring process in REs as a work in progress, with significant manual intervention in various aspects of this function.

Regulated Entities

The REs encompass Scheduled Commercial Banks (excluding Regional Rural Banks), Small Finance Banks, Payments Banks, large urban cooperative banks, large non-banking finance companies (including housing finance companies), Credit Information Companies, and All India Financial Institutions.

RBI recently conducted an assessment in select REs to evaluate the existing system for internal compliance monitoring and the extent of technological solutions used to support this function.

The central bank observed that REs have varied levels of automation in place to support internal compliance monitoring, ranging from macro-enabled spreadsheets to workflow-based software solutions.

The review highlighted that automation of the compliance monitoring process in REs is still evolving, with significant manual intervention.

Comprehensive Review and Implementation

“There is a need to implement comprehensive, integrated, enterprise-wide, and workflow-based solutions/tools to enhance the effectiveness of this function,” stated RBI.

RBI has instructed REs to conduct a thorough review of their existing internal compliance tracking and monitoring processes and make necessary changes to current systems or implement new systems by June 30, 2024. It also requires the establishment of a monitoring mechanism to track the progress of implementation.

Speaking at the Conference for Heads of Assurance Functions, RBI Deputy Governor Swaminathan J emphasized the crucial role of the Compliance function in ensuring the integrity of banking operations.

He urged institutions to adopt a ‘regulation-plus’ approach, exceeding regulatory expectations and focusing on full compliance with both the letter and spirit of the law or regulation.

This approach not only ensures regulatory compliance but also promotes a culture of ethical conduct and sound business practices within organizations.