Three lines of defence

It takes a lot of work for a bank to be compliant, and it’s getting more expensive, too. So what is banking compliance, and how is it carried out?

Episode 49 of the A Dictionary of Finance podcast, hosted by European Investment Bank, titled "Three lines of defence" was published on June 10, 2018 and runs 31 minutes.

June 10, 2018 ·31m · A Dictionary of Finance

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Summary

In preparing this podcast which aims to answer the question what is banking compliance, we naturally engaged in some deep research on the subject. So, on Wikipedia we discovered that in mechanical science compliance is the opposite of stiffness, i.e. flexibility, measured in metres per newton.Which may sound confusing, because in finance and banking, compliance is not well known for its flexibility. We had a chat on ‘A Dictionary of Finance’ podcast with Branimir Berkovic, head of the tax compliance unit, and Sophie Rase, compliance officer in corporate compliance at the European Investment Bank to find out what compliance encompasses in the industry. And we learned that:Compliance ensures the organization follows rules and regulations, set both externally (for example, by lawmakers) and internally (for example, by shareholders).One could even say that compliance is the flexibility of banks in response to society’s standards and demands. Not unlike in mechanical science, compliance helps banks be less stiff, if you will.Sophie and Branimir explain that compliance involves monitoring and following rules in relation to:·        tax evasion·        money laundering·        financing of terrorism·        corruption and more.We find out what politically exposed people are. (It’s people who have business or family links to government officials and could thereby be linked to corruption schemes.) And we find out about BEPS (Base Erosion and Profit Shifting). These are strategies companies use to make their tax bill smaller in a given jurisdiction, by making their profit seem lower by eroding their taxable base with fake costs, or transferring their profits to another jurisdiction with more favourable tax laws.Sophie tells us that compliance is a process-driven discipline, which works by creating and monitoring different policies, such as a system for whistleblowing. She also explains the three lines of defence in the context of a bank:First line: the front office, the loan officers who directly engage with clients and should identify any compliance risks involved with doing business with anyone. Second line: compliance officers, who develop and monitor the procedures, and investigate more deeply should red flags be raised in a project.Third line: independent auditors.Our podcast helps—somehow, I’m sure—to make the bank less stiff and more compliant. So if you appreciate our efforts, subscribe, rate us, and review us!All you need to do for that is to look us up on iTunes, Acast, Spotify or wherever else you prefer to keep track of your favourite podcasts. Your feedback is also much appreciated via @EIBMatt or @AllarTankler on Twitter.  Hosted on Acast. See acast.com/privacy for more information.

Episode Description

Which may sound confusing, because in finance and banking, compliance is not well known for its flexibility. We had a chat on ‘A Dictionary of Finance’ podcast with Branimir Berkovic, head of the tax compliance unit, and Sophie Rase, compliance officer in corporate compliance at the European Investment Bank to find out what compliance encompasses in the industry. And we learned that:

Compliance ensures the organization follows rules and regulations, set both externally (for example, by lawmakers) and internally (for example, by shareholders).

One could even say that compliance is the flexibility of banks in response to society’s standards and demands. Not unlike in mechanical science, compliance helps banks be less stiff, if you will.

Sophie and Branimir explain that compliance involves monitoring and following rules in relation to:

· tax evasion

· money laundering

· financing of terrorism

· corruption and more.

We find out what politically exposed people are. (It’s people who have business or family links to government officials and could thereby be linked to corruption schemes.)

And we find out about BEPS (Base Erosion and Profit Shifting). These are strategies companies use to make their tax bill smaller in a given jurisdiction, by making their profit seem lower by eroding their taxable base with fake costs, or transferring their profits to another jurisdiction with more favourable tax laws.

Sophie tells us that compliance is a process-driven discipline, which works by creating and monitoring different policies, such as a system for whistleblowing. She also explains the three lines of defence in the context of a bank:

First line: the front office, the loan officers who directly engage with clients and should identify any compliance risks involved with doing business with anyone.

Second line: compliance officers, who develop and monitor the procedures, and investigate more deeply should red flags be raised in a project.

Third line: independent auditors.

Our podcast helps—somehow, I’m sure—to make the bank less stiff and more compliant. So if you appreciate our efforts, subscribe, rate us, and review us!

All you need to do for that is to look us up on iTunes, Acast, Spotify or wherever else you prefer to keep track of your favourite podcasts. Your feedback is also much appreciated via @EIBMatt or @AllarTankler on Twitter.

Hosted on Acast. See acast.com/privacy for more information.