ABSTRACT
Introduction In recent years compliance has become a major regulatory and supervisory issue and an essential part of banks’ business activities and corporate culture. The term compliance in banking refers, in general, to the compliance of the banking institution with established domestic and international laws, rules, and standards related to the banking profession. The importance and integrity of compliance in banks is fully appreciated given the compliance risk, which is defined by the Basel Committee on Banking Supervision (BCBS) of the Bank for International Settlements (BIS) as: “the risk of legal or regulatory sanctions, material financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct applicable to its banking activities.” As such, compliance as a concept covers both general and specific matters. Of utmost importance is compliance with anti-money laundering (AML), countering the financing of terrorism (CFT), economic and financial sanctions, and tax evasion regulations, as compliance failure in these areas specifically tend to expose the bank to significant fines and compliance risk (i.e. reputational damage). Obviously, the nature and scale of penalties and charges for non-compliance in other regulatory areas vary from one country to another and could also be substantial in certain cases.
