The Reserve Bank of India (RBI) has asked Tier 4 Urban Cooperative Banks (UCBs) – lenders with deposits over 10,000 crore – to appoint a Chief Compliance Officer by April 1, 2023 as part of their corporate governance standards.
The central bank has granted tier 3 credit unions to the city – with deposits of more than 1 trillion
RBI said that this circular will be presented at the immediately next meeting of the Board for information and development of an implementation strategy under the Board’s supervision in a timely manner.
UCBs below Tier 1 – with deposits up to 100 crore – and Tier 2 – with deposits over 100 crore and up to 1,000 crore – will continue to be subject to the existing guidelines.
Under current standards, compliance is one of the primary responsibilities of the Directors and Audit Committee of the Board, and a senior official is designated the “Compliance Officer”.
Tier 3 and Tier 4 UCBs treat the Circular’s policies only as a minimum set of policies and accordingly formulate their own policies taking into account their corporate governance framework, business size, risk profile, organizational structure and Code behavior, etc., says the banking regulator.
The RBI also warned against “dual hatting”. “The CCO should not be given any responsibility that involves a conflict of interest, particularly any role related to the business,” the central bank said.
“The CCO and the compliance function must have the authority to communicate with any employee and have access to any records or files necessary for him/her to carry out his/her assigned duties related to compliance issues,” says the RBI and adds UCBs are free to adopt their own organizational structure for the compliance function.
However, the function must be independent and adequately resourced, its responsibilities must be clearly defined and its activities must be regularly and independently reviewed, she adds.
Chief compliance officers should have direct reporting lines to the managing director and chief executive officer, RBI says.
If the CCO reports to the MD & CEO, the Board/Board Committee will meet with the CCO on a quarterly basis on a one-to-one basis without the presence of senior management, including the MD & CEO, RBI said.
The CCO is not intended to have a reporting relationship with the business verticals, he adds.
