RBI lays down guidelines for banks to appoint chief compliance officers

RBI laid down guidelines for appointment of chief compliance officer (CCO) in banks to ensure uniform approach with regard to compliance and risk management culture across the banking industry

The Reserve Bank of India (RBI) on Friday laid down guidelines for appointment of chief compliance officer (CCO) in banks to ensure uniform approach with regard to compliance and risk management culture across the banking industry.

According to an RBI circular, the CCO should be appointed for a minimum fixed period of three years in the rank of a general manager or not below two levels of the rank of CEO.

"Such an independent compliance function is required to be headed by a designated CCO selected through a suitable process with an appropriate 'fit and proper' evaluation/selection criteria to manage compliance risk effective," the RBI said.

Observing that the banks follow diverse practices in this regard, the RBI said guidelines are meant to bring uniformity in approach followed by banks, to align the supervisory expectations on CCOs with best practices.

As per the guidelines, a CCO "may be transferred/ removed before completion of the tenure only in exceptional circumstances with the explicit prior approval of the board after following a well-defined and transparent internal administrative procedure".

The CCO, it added, should be a senior executive of the bank, preferably in the rank of a general manager or an equivalent position (not below two levels from the CEO). The CCO could also be recruited from the market.

Further, there shall not be any "dual hatting", the RBI said. In other words, the CCO "shall not be given any responsibility which brings elements of conflict of interest, especially the role relating to business".

Roles which do not attract direct conflict of interest like role of anti-money laundering officer can be performed by the CCO in those banks where principle of proportionality in terms of bank's size, complexity, risk management strategy and structures justifies that.

Also, theCCO should not be a member of any committee which brings his/her role in conflict with responsibility as member of the committee, including any committee dealing with purchases/ sanctions, it said.

"In case the CCO is member of a committee, he/she may have only advisory role," the guidelines said.

As per the circular, novigilance case or adverse observation from the RBI should be pending against the candidate identified for appointment as the CCO.

Selection of the candidate for the post of the CCO should be done on the basis of a well-defined selection process and recommendations made by the senior executive-level selection committee constituted by the board for the purpose, it added.