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The Value of a Compliance Committee

By Blair Rugh 9 Dec 2015

One of the things I recommend to all financial institutions is a compliance committee. It is the job of the institution’s compliance officer to advise and educate all of the departments of a financial institution about what the various regulations require and to assure that the financial institution complies with those regulations. The function of a compliance committee is more expansive.


I recommend that the compliance officer chair the committee. Its membership should include a senior person from each functional area of the institution. Certainly, someone from mortgage lending and someone from consumer lending should serve on the committee. In addition, someone from deposit operations, human resources and marketing should also participate. If the institution has a trust department, include someone from that department as well. I also recommend that someone from the financial institution’s executive committee be included, and the president of the institution should be an ex officio member. I also recommend that at each meeting someone who is on the front line of dealing with the regulations, a loan officer, teller or customer service representative be invited to attend. They are the ones who really understand the impact of the regulations.


First, it is not the purpose of the committee to provide the compliance officer a forum to educate the members on the various compliance regulations. That should be done outside the committee with each individual department; however, the compliance officer can inform the committee of regulatory changes that he or she sees on the horizon.


The purpose of the committee is to devise ways to deal with the existing regulations more efficiently. Some regulations such as RESPA and HMDA effect only one department, in this case, consumer mortgage lending. Other regulations such as privacy and BSA effect virtually every department of a financial institution. In those areas, how can the departments of an institution work more closely to achieve a better compliance result at a lower cost?


I have frequently written about how a financial institution can use some regulations to its benefit.  How can the deposit operations department provide the lenders with information that it collects about its customers to provide new lending leads? How can the lenders tie their products with deposit products?  Some financial institutions do not maintain escrow on their mortgage loans because they believe that it is too burdensome to do so. It is a burden, but it also can provide a significant source of deposits on which the institution does not have to pay interest. Does the value of the escrow deposits exceed the cost of the burden? This is the sort of matter the compliance committee can figure out.


Would it be helpful to the marketing department to have a list of all the institution’s loan customers who made their loan payment with a check or transfer from another institution? Would it be helpful to the loan department to have a list of all of the institution’s deposit customers that are making a loan payment to another financial institution from the customer’s account? Can that information be transmitted from one department to another and used for the institution’s marketing without violating some regulation?


One of the requirements of virtually every regulation is that the financial institutions that it impacts have a policy to address it. A compliance committee is an excellent vehicle to approve or modify policies formulated by the compliance department.


A compliance committee can act as a tool to take the various disparate departments of a financial institution and meld them into one organization cooperating and acting together for the benefit of all. Also, realize that members of one department are not so myopic that they don’t have ideas that can assist their contemporaries in other departments. A compliance committee is an opportunity to draw together the various departments of a financial institution so that each can benefit from the success of the others.


If your financial institution does not have a compliance committee, or if you have one that is not functioning properly, consider forming a committee or refocusing its mission to optimize its value to the institution.

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