Compliance and the compliance function in banks - final document

April 2005

As part of its ongoing efforts to address bank supervisory issues and enhance sound practices in banking organisations, the Basel Committee on Banking Supervision is issuing this high level paper on compliance risk and the compliance function in banks. Banking supervisors must be satisfied that effective compliance policies and procedures are followed and that management takes appropriate corrective action when compliance failures are identified. The paper provides basic guidance for banks and sets out banking supervisors' views on compliance in banking organisations.

Using a framework of principles, the paper illustrates how compliance with the laws, rules and standards that govern banking activities helps to maintain a bank's reputation with its shareholders, customers, employees and the markets. At the same time, the paper incorporates sound practice guidance to assist banks in designing, implementing and operating an effective compliance function. To optimise its usefulness to all banks, the paper stresses that a single framework of principles for effective compliance risk management does not restrict individual banks to a single organisational or operational approach. However, each bank must be prepared to demonstrate that the approach adopted is effective in dealing with the bank's unique compliance risk challenges.