There’s no playing around when it comes to compliance at a bank. There are laws and regulations that your bank must follow or you’re out of the business. No pressure.
So, naturally, your bank needs something to help your financial institution maintain compliance. Let’s cut to the point — banks must have a compliance management system (CMS).
A CMS isn’t a singular piece of software or a web application, per se. Rather, it’s a combination of people, strategy, systems, and protocols.
As a content coach, I’ve worked with many different industries to help ScreenSteps knowledge base customers write clear documentation so that they can adhere to industry standards. It is often stressful, but with the right strategy and tools, compliance is manageable.
Consider this your compliance management system 101 overview. We’ll start at the beginning by defining compliance management and CMS, particularly the CMS strategy. Then we’ll dive into the details: what’s the purpose of a CMS, components to an effective CMS, CMS tools, and benefits.
In the end, you’ll have a good idea of how to organize your bank CMS plan.
What is compliance management?
Compliance management is the process used in banks when they need to adhere to set regulations, laws, and industry requirements. It ensures that employees and activities across the organization are able to comply with these regulations.
These requirements are set by governments, industry leaders, regulatory bodies, and employee unions. For banks in the United States, the main governing body is the Federal Reserve System. However, there are both federal and state regulators for banks.
Compliance management is important in banks because non-compliance leads to:
- Fines and Monetary penalties
- Litigations
- Formal enforcement actions
What is a compliance management system?
A compliance management system (CMS) is the plan a company designs to achieve compliance. It helps manage risk. With a CMS, companies can:
- Communicate regulations (i.e. documented policies, processes, and procedures)
- Ensure employees follow regulatory laws
- Pass audits that evaluate the financial institution’s ability to maintain compliance
It is not a piece of software, though it can include software. It’s actually a collection of systems, processes, procedures, controls, tools, and job functions that enable your bank to be compliant with regulatory requirements.
For more information on CMS as a software (also known as a compliance management application), jump to the CMS software and tools section below.
What is the purpose of a compliance management system?
The purpose of a CMS is to take a look at compliance from every angle so that you can better address risk management. It helps your organization understand compliance, adhere to the regulations, and prepare for compliance audits.
A CMS helps financial institutions get organized, document policies and procedures, and build a program that addresses compliance training, communication, and monitoring. This applies to a CMS as a strategy and as a software tool.
No one magic jelly bean will make your compliance headaches go away. Compliance is like a team sport — you need a lot of people to help each other out and take on different roles and responsibilities.
A CMS helps your organization distribute responsibilities — from those overseeing compliance to your frontline workers — so that everyone on your team understands and accomplishes compliance goals.
3 components of an effective compliance management system
There are three main components to a CMS: (1) board and management oversight, (2) compliance program, and (3) compliance audit.
When these three elements are created to support one another, it sets your financial institution up for success in fulfilling your compliance responsibilities.
1. Board of Directors and management oversight
It is the Board of Directors’ responsibility to develop and administer a plan for your compliance management system. These senior leaders should have a pulse on the state of compliance execution in the bank at all times.
The board of directors is like your head football coach. While they aren’t specifically providing the offense with all the plays or preparing the defense with each strategy, the head coach has communicated with his Offensive and Defensive Coordinators to ensure the team is ready for a game.
Some of the signs that a board is effectively carrying out its compliance obligations include they:
- Clearly communicate and emphasize the responsibilities and expectations of each team member to follow compliance laws and regulations
- Provides clear policy statements
- Provide resources (i.e. tools, software, etc.) that help the company maintain compliance
- Conduct compliance audits regularly
However, the board may also, and typically does, appoint a compliance officer (or compliance manager) to oversee and carry out the compliance plan. If you have a larger financial institution, the board can appoint a compliance committee.
If the board appoints a compliance officer, they need to provide adequate opportunities for the compliance officer to report back on the CMS operations to the board.
Role of a compliance officer
The compliance officer and/or committee is responsible for developing and carrying out the compliance plan under the direction of the board.
Some of the key duties and responsibilities of a compliance officer include:
- Develop compliance policies and procedures
- Create and distribute compliance training for management and employees
- Reviews evolving laws and regulations and updates the company’s policies and procedures to comply with changes
- Stays aware of and assesses emerging issues and potential liabilities
- Provides frontline workers proper responders to consumer complaints
- Reports compliance activities and audit findings to the board
Basically, the compliance officer is the defensive coordinator of your football team. The defensive coordinator is hired to create a solid defensive line against the opposing team.
In the same vein, a compliance officer is hired to help block any non-compliance practices from entering your bank.
🔍 Related: How to Ensure Compliance with Bank Policies and Procedures
2. Compliance program
Every bank must have a written compliance program that establishes expectations for how you will fulfill compliance requirements. This should be a document your employees can reference.
A compliance program typically includes these aspects:
- Documented policies and procedures
- Training
- Monitoring
- Consumer complaint response
Documented policies and procedures
The documented policies and procedures set expectations for how things need to be done in order to align with compliance regulations.
These written policies and procedures shouldn’t just be a dumping ground for compliance information — they are meant to help personnel perform business transactions.
Part of the compliance program is having a plan to keep the written policies and procedures updated with changes.
🔍 Related: Compliance Policies and Procedures: One Mistake to Avoid [VIDEO]
Training
A compliance training plan includes both the initial onboarding as well as the continued learning. Your training program needs to include options that help teach your employees changes to your policies and procedures.
Training is taught by compliance experts, so members of the board, management, and staff are an essential part of training.
Monitoring
Monitoring is evaluating your processes — documentation and training — and identifying weaknesses. This step helps you confirm that your operations staff is applying procedures.
As your team uncovers areas that need improvement in your CMS, you can make changes to improve the function of your program.
Consumer complaint response
Customer complaints are inevitable. It’s important to have a plan on how you will respond to complaints. Establish procedures for what to say, what to do, and who will handle the response.
It’s essential that your response is prompt.
3. Compliance audit
A compliance audit is completed by a third-party vendor. Your company invites an impartial party to review your systems and protocols. You want someone outside your organization to do the audit so that they can perform the audit without bias.
Before hiring an external auditor, you’ll want your board to determine the scope of the audit. Figure out what you want evaluated in your compliance program.
Between external audits, you can perform risk assessments and internal audits to make sure you are living up to your industry compliance standards.
In the end, you get a big stamp of approval on the work you are doing and areas where you can improve.
🔍 Related: How to Prepare Procedures For an ISO Audit ( 1 Mistake + 5-Step Solution)
CMS software and tools
There are many software solutions to help your company achieve its compliance management plan.
However, not all of the software options handle every aspect of compliance management. You may need a technology stack — meaning two or more applications — to handle every aspect of your compliance management plan.
Some CMS software and tools solve:
- Documenting and storing policies
- Training employees on compliance
- Managing audit schedules
Learning management system (LMS)
A learning management system (LMS) is used for the training aspect of compliance. With an LMS, you can assign self-paced courses to teach your employees about rules and regulations.
Document management system
Document management systems are cloud-based applications that allow you to upload documents and organize them in files.
Knowledge base
A knowledge base is a cloud-based knowledge management system that helps you create, store, and share documents across your organization.
Content management application
Not to add to the confusion, but a content management application can also be referred to as a CMS (it stands for content management system). There are a variety of different content management applications that serve different purposes. There are CMS platforms created specifically for banks that help with compliance.
Benefits of a compliance management system
There are many benefits to having a compliance management system in your organization.
- Reduces risk
- Reduces legal problems
- Improves procedural efficiency
- Improves company’s reputation
- Increases customer trust and satisfaction
- Increases employee engagement
- Aligns employees across the organization
Achieve compliance with documentation that is easy to create, share, and use
Maintaining compliance is essential for the success of your bank, which is why every bank needs a CMS. There are many different tools to help your bank achieve compliance.
One critical piece to compliance is documented procedures. In order for your employees to be compliant, they need access to your documented procedures and be able to follow those instructions in the workflow.
With a cloud-based ScreenSteps knowledge base, it is fast and easy to create, store, and share documents in your bank. Plus, it is easy to update and distribute new policies and procedures so that you can be agile with the constantly changing banking regulations.
Your ScreenSteps knowledge base could be used with other compliance support software — like a content management application or independently.
Want to know if ScreenSteps could help your organization achieve compliance? Watch this video about how ScreenSteps helps banks achieve their compliance goals.
