Arnis Lagzdins, Biruta Sloka


Regulators more than ever believe an efficient compliance function is a prerequisite for good corporate governance that should restore trust, integrity, and responsibility in the banks, findings in academic research has confirmed mentioned above in many countries. Compliance is key facet of governance because it shows how actually bank meets corporate responsibilities. The new guidelines in September 2011 had been issued by European Banking Authority with more attention to the compliance function.

Compliance is very complex function and covers different areas: Anti-money laundering, investment protection, consumer protection, data protection and etc. Compliance complexity arises from several factors. As human society becomes more complex, the complexity of regulation also increases. Compliance as an element of order follows the same development as regulation. Compliance organizational complexity is related to the fact that regardless of the compliance functions origin and make-up, regulators are demanding that compliance is built into the business process. With respect to banks complexity can be measured along three dimensions. Vertical complexity is the number of levels in organizational hierarchy, horizontal complexity is number of job titles or departments across organization, and spatial complexity is the number of geographical locations. From the organizational view point traditional compliance organizational structures are crumbling under the weight of ever-increasing regulations that drives greater accountability and transparency. Banks are building new and improved structures that support and enhance this new compliance environment, and best practices are emerging. The complexity of banking business and compliance function urges compliance and other bank managers to use the concepts of „systemic thinking“, the bases of the new management culture of the twenty–first century. There appears exist a common approach that makes it possible to understand better and describe better the organized complexity – “systemic approach” that rests on the conception of “system.”

Banking as any other business process is a socio – technical system, executed by humans and machines. Research problem of this paper is compliance program as a first-level element of the compliance management system in order to organize and manage human part of the banking business process in area of compliance. Basel Committee survey confirmed that regulators in some countries promote use of such system as a compliance organizational framework. Compliance management system in a context of organization consists of three interdependent elements: Board oversight, compliance program and compliance audit program.

The objective of this paper is to address organizational aspects of compliance program and evaluate its current status in compliance regulatory framework and practical application in commercial banks in Latvia. The goal of the survey is to identify how compliance program is organized and how banks are designing this program as a compliance risk management tool to better prepare for demanding regulatory requirements. The results of a survey highlight lack of concept of compliance program in regulatory framework and necessary organizational improvements are recommended, especially for small and medium size banks.

Research methodology: Theoretical update of publications related to compliance program issues in banks. Empirical research is performed by survey of all commercial banks in Latvia. The survey is carried out through a structured questionnaire to get information on presence of the compliance framework and its implementation. Questionnaire is divided into several sections: status and profile of the compliance top manager; organizational issues of compliance function: status of compliance program; level of education, knowledge and experience of compliance specialists, compliance training, number of compliance and overall staff, reporting lines and role of the board. For evaluation is used 10 point scale, where 1 – fully disagree, 10 – fully agree. The survey data are analyzed by help of descriptive statistics (indicators of central tendency or location, indicators of variability and cross – tabulations).

In the survey performed in all commercial banks of Latvia (22) were received 19 responses (response rate 86,4%). It is found that in general, banks in Latvia are responding positively to regulation developments and following global compliance risk management trends. The banks interviewed underline the need to have more clear and updated guidelines from regulator regarding compliance program. The survey supported development of agenda for newly established Compliance Committee in Latvian Commercial banking Association and has indicated that the respective Compliance Committee will have to do a lot of work.



Banks; regulation; compliance management system; compliance function; compliance program; Latvia

Full Text: PDF

Print ISSN: 1822-8402
Online ISSN: 2335-8831