Compliance Notes - 1
National economic crises with an impact on a global scale led to the creation of the Basel Committee on Banking Supervision (BCBS), which finds its precedent in the 1st World War.
The BCBS is the main international regulatory body for prudential regulation in financial matters.
The BCBS is mandated to improve regulation, supervision, and banking practices around the world in order to enhance financial stability internationally.
As part of its mandate, the BCBS has issued guidelines and established the bases for national banking supervisory authorities and Central Banks to issue prudential regulations applicable to banks to preserve the stability of the International Financial System.
The purpose of prudential regulation is to reduce the risks to which banking institutions and the Financial System in general are exposed, as well as to allow supervisors to monitor financial institutions regarding compliance with regulations and the assumption of excessive risks. .
Prudential regulation encourages banks to regulate themselves and have mechanisms for early detection and control of risks that allow them to prevent such risks from updating.
One of the most important mechanisms that financial institutions have to prevent and mitigate risks is Compliance.
As mentioned, Compliance was initially aimed at banking entities, however, given the multiple scandals and deviations in the conduct of certain corporations, its obligation to implement it has been extended in various industries and economic sectors.
In addition to the BCBS, there are other international organizations that have established Compliance guidelines for corporations to assume a more active role in combating phenomena and risks that weaken national economies, the States and the local and international Financial Systems.
Some of them are:
Conclusions.
Compliance arises from the need of the National States and the international consensus to establish new guidelines for the Banking Sector, through the Basel Committee on Banking Supervision.
These guidelines are incorporated into the “Basic Principles for Effective Banking Supervision”.
These Principles establish the de facto minimum standards for the correct prudential regulation and supervision of banks and banking systems.
Under prudential regulation, it is intended that Banks initially, and later, the other entities of the financial sector establish efficient mechanisms for the control and mitigation of risks.
Compliance is intended for financial entities to incorporate sufficient, effective and appropriate prevention mechanisms for each financial institution.
Compliance has become a practice that has spread to strategic economic sectors, which have also been impacted by bad practice crises and, therefore, National States have been forced to issue this type of prudential regulation.
Hector Contreras
Governance, Ethics & Compliance Advisors