What is Compliance in Banking?


The financial industry is a highly regulated sector because of its nature. In the UK, compliance in banking is a legal requirement that all financial institutions must meet following applicable regulations. Non-compliance can result in hefty fines or even criminal liability, so financial institutions must take steps to ensure they adhere to relevant laws. 

Despite the penalties and consequences of non-compliance, many banks and other financial institutions still fail to do their due diligence. UK regulators have imposed a total amount of £215 million in fines at the end of 2022. This form of negligence has already led to significant losses and will inevitably tarnish the reputation of these banks in the eyes of their customers.

FinregE will answer some of the most common questions and misconceptions about banking compliance. These include what is compliance in banking, and what measures should financial entities take to protect themselves and their customers from potential harm.

Continue reading to learn more.


A Closer Look at Banking Compliance and Its Purpose

Banking compliance is a set of rules and regulations that banks must follow in the UK. These regulations are enforced by the Financial Conduct Authority (FCA) and other relevant financial regulators. Compliance ensures that banks follow industry standards and act responsibly when dealing with customers’ finances. The purpose of banking compliance can be broken down into three main goals:

  • To protect customers from fraud or unethical activities
  • To ensure that banks meet their legal obligations under applicable laws and regulations
  • To create a safe environment for customers to manage their finances


Common Misconceptions About Compliance

Here are some misconceptions about banking compliance that need to be addressed:

  • Compliance only applies to large banks: All banks, regardless of size, must comply with applicable laws and regulations and will benefit from them.
  • Having a superficial understanding: Compliance is not just for meeting legal obligations; it also protects customers and creates a secure space for financial transactions.
  • Compliance is too complicated: While compliance can be complex, it doesn’t have to be difficult if banks take the necessary steps.
  • Not investing in internal auditing: Some banks underestimate the importance of internal auditing processes in mitigating risks.


Implementing Banking Compliance

To ensure banking compliance, financial entities must review all processes and make the necessary adjustments as guided by best practices in banking compliance:


Define Tasks and Responsibilities

Clear processes must be established to define the responsibilities of each individual involved in compliance. This should include setting up a distinct compliance team with its tasks and duties.


Automate Risk and Control Framework

Banks should have an automated risk and control framework to identify, assess, and monitor risks that could arise from their activities. This system can detect anomalies that would indicate a potential violation of regulations.


Perform Regular Risk Assessments

Banks should regularly assess the institution’s operations to identify any areas with compliance issues or vulnerabilities. 


Train Staff on Compliance Procedures

Banks should invest in an internal auditing process to ensure records’ accuracy and identify any violations of compliance laws or policies. 


Monitor Transactions for Suspicious Activity

Banks must also have effective systems to monitor their operations for compliance risks, such as money laundering or terrorist financing.


Utilise Compliance Software

Banks should use software to help manage their compliance processes. This can include automated systems that can detect anomalies in customer transactions and alert them if any violations occur. 


Stay on Top of Banking Compliance

At FinregE, we understand the challenges that come with compliance. We developed a cutting-edge compliance management solution that helps our clients navigate the ever-changing landscape of financial regulations. Book a demo today!

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