Non-compliance, poor governance leads to a financial crisis

Rasheed Al Maraj, CBB Governor

MANAMA: The poor governance and non-compliance to the rules and regulations push the economic system towards the crisis. In the wake of non-compliance, the banks and the financial institutions end up paying cost $250 billion, says the CBB Governor.

The Kingdom of Bahrain is enhancing the scope of financial penalties for non-compliance by the banks and financial institutions in line with the Central Bank of Bahrain’s (CBB) efforts to put in place stringent regulatory regime towards governance and compliance, HE Rasheed Al Maraj, the Governor CBB, tells the participants of the 12th MENA Regulatory Summit 2018, opens in Bahrain on Monday.

The CBB Governor finds himself talking about the basic issues of corporate governance related to ethics, trust, integrity and compliance during every conference.

“These are essential elements for a safe and sound operating environment even after tightening of rules and enhanced regulatory engagement across the board,” says Governor.

What does recent history tell us about the cost of non-compliance? The global financial crisis of 2008 and its aftermath amply prove that if we ignore compliance we get into serious trouble. According to some estimates since the 2008 crisis the global banks have paid over US$ 250 billion in fines and penalties. Just the top ten offenders have paid about US$ 180 billion. It is clearly the failure of the leadership that did not comply with rules, regulations and basic business ethics.

“The cost of non-compliance is not just monetary; it is also economic and social. The global banks have had to make major strategic organizational and governance changes in the last ten years. Hundreds of thousands of employees lost their jobs. Banks had to re-strategize their businesses, often resulting in withdrawing from certain markets and business segments in order to de-risk the business and to focus on their core markets. In fact, de-risking, which has created its own issues of non-inclusiveness, is a result of failure in compliance.
“At the Central Bank of Bahrain, we take compliance with utmost seriousness. We will soon be issuing our methodology for financial penalties for violations other than date sensitive requirements. During the first half of this year we are going to issue a new enhancement to rules covering the compliance function requirements including structure, reporting, adequacy of resources and compliance related roles and responsibilities of the Board, senior management and compliance personnel. This will augment and further strengthen the existing compliance framework. We continue to emphasize on robust AML/CFT procedures and have zero tolerance for a lax attitude in this area. At the same time, we are also exploring new ways to facilitate banks to reduce their cost of compliance through electronic KYC, without compromising on our commitment to follow international standards.

“Promoting a culture of compliance at all levels is a complex and time-consuming task. It has to start from the top. The leadership of the institution – specifically the board and the CEO – need to walk the talk. Their actions must reflect the institutional values, even in matters which are grey areas. This may mean withdrawing from or declining some transactions or businesses.”

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