Compliance risk in Italian banks: the results of a survey

Abstract

Purpose -The objective of this paper is to highlight the results of a survey on compliance practices in Italian financial institutions (Italian banks and branches in Italy of foreign banks). Design/methodology/approach -The survey is carried out through a structured questionnaire, arranged into several sections: general information on the definition and framework of compliance risk, organizational structure, reporting, culture, purpose and tasks of the compliance staff, assessment of the compliance staff performance and of the risk. The survey is mainly developed on two issues: organizational and risk assessment implications. Findings -It is found that many survey participants are responding positively to regulation developments, since there is a widespread recognition of compliance as a key element for creating value and improving reputation. It is also found that the Italian banks surveyed, whose compliance activities have been usually performed by internal audit, dedicate less attention to compliance matters in comparison with the branches of foreign banks. The institutions interviewed underline the need to have clear guidelines from supervisory authorities, so that they can achieve an effective and efficient management of compliance risk. Originality/value -This subject has not been analyzed in depth to date. This paper provides a representative view of the management of compliance risk in Italian banks, thanks to the variety of the issues under observation and the size of the sample.

Firm size and compliance costs asymmetries in the investment services

“…Data were collected between January and February 2009 using a questionnaire. The structure of the questionnaire was analogous to a previous one (hereafter, 2007 Survey)[1] although the survey was integrated and improved with various in depth sections (Birindelli and Ferretti, 2008). The questionnaire contains the company descriptive data section and the investigative section with 11 questions (Appendix).…”

Identifying the volatility of compliance risks for the pension custodian banks

“…The regulations applicable to implementing the compliance functions and the key principles of the institutional compliance management in banks were developed by the Basel Committee on Banking Supervision and presented as consultation documents (BCBS, 2003(BCBS, -2005. In turn, scholars address the following aspects in the study reports: implementing the compliance functions in banks (Singh, 2003;Edwards & Wolfe, 2004;Haynes, 2005;Misha, 2016); functional duties and roles of bank compliance officers (Fox, 1999;Meissner, 2018); assessing the compliance risks and their consequences, and compliance risk management (Haddad, 2016 According to analytical studies (Birindelli & Feretti, 2008) on the identification of compliance regularities and, specifically, the comparison of compliance systems used by Italian banks and structural subdivisions of foreign banking groups, the latter seem to pay more attention to compliance issues. Gabbi et al (2011) also factored in the criterion of international activity while cross-checking various groups of financial institutions (banks, insurance and investment companies) and pointed out that financial go-betweens with foreign capital appeared to be more experienced in terms of their ability to assess compliance risks and recognize their danger.…”

Compliance function in Italian banks: organizational issues

“…The organizational aspect has been examined by other studies, all focused on the interactions with other business structures. Among these, we mention the following surveys: KPMG (2006), Nadotti and Gallo (2006), Porzio (2006), Birindelli and Ferretti (2008), Alberici et al (2009), Gabbi et al (2012) and Gallo (2009) (Table I shows the principal results concerning the organizational aspects, often examined with other observation items). In addition, Haynes (2005) Italian banks have a tendency to organize their compliance function within the legal office or that of IA; foreign banks assume a governance structure characterized by a hierarchical subordinance to the senior management or the board of directors Interrelations with other functions Generally, the compliance function gives advice (mandatory or otherwise) on issues related to legal risk, while the RM function monitors all risks.…”

“…In the case of compliance activities assigned to a pre-existing function, this function is usually that of the IA (67 percent) Porzio ( 2006) Field of investigation 12 Italian banks and nine foreign banks working in Italy Year of observation 2006 Organizational positioning of compliance Duties and responsibilities regarding compliance issues are assigned to a dedicated structure (82 percent); a framework of organizational presidiums coordinated by a head who reports to top management is in place in the remaining 18 percent of cases Interrelations with other functions In 50 percent of the sample, the IA function verifies that internal policies predisposed by the compliance function consistent with external regulations have been followed. In 10 percent of the intermediaries examined, the compliance function monitors observance of the internal/external provisions and the IA verifies that the parent company's policies have been implemented Birindelli and Ferretti (2008 Functional overlaps are found. The sample highlights some difficulties in distinguishing events engendering compliance risk or operational risk; there are also uncertainties regarding the function that should define how to measure the economic capital related to compliance risk, the risk models and the compliance risk assessment system.…”

“…As for the purposes of the internal control system (also covering compliance with laws, regulations and self-regulatory arrangements), the regulations in fact assign the control of compliance to the internal audit (IA) function, restricting the expertise to "relevant internal audit qualifications" (PricewaterhouseCoopers, 2002, p. 26). The recent transition in Italy to the stand-alone model explains both the most advanced development of compliance in Italian branches of foreign banks and the creation of the function in many Italian intermediaries as a spin-off from IA or legal functions, the sectors usually involved in compliance matters (Birindelli and Ferretti, 2008).…”