What changed
RBI finalized and issued binding guidelines on the compliance function in banks, replacing the draft guidelines from November 2006. Banks must now implement these guidelines fully within six months, with compliance reviewed during the next Annual Financial Inspection.
What it means for you
Banks must elevate the compliance function to a key pillar of corporate governance, ensuring it is independent and adequately resourced. This shift recognizes compliance risk as a critical component of integrated risk management, requiring banks to proactively manage reputational and economic risks from non-compliance.
What you must do
- Establish or strengthen an independent compliance function within six months, ensuring it reports directly to senior management or the board.
- Integrate compliance risk management into the enterprise-wide risk management framework.
- Ensure compliance covers all statutory provisions, regulatory guidelines, industry codes, and internal policies.
- Prepare for a comprehensive review of the compliance function during the next Annual Financial Inspection by RBI.
Who it affects
All scheduled commercial banks (excluding RRBs), Bank-led financial conglomerates, Compliance officers and risk management teams, Senior management and boards of banks
What is the deadline for implementing these compliance guidelines?
Banks must implement the guidelines fully within six months from the date of the circular, i.e., by October 20, 2007.
Does this circular apply to Regional Rural Banks (RRBs)?
No, the circular explicitly excludes RRBs; it applies to all other scheduled commercial banks.
How will RBI verify compliance with these guidelines?
Implementation will be reviewed during the ensuing Annual Financial Inspection conducted by RBI.