The Role of Compliance in Developing a Banking Risk Management Culture

Abstract

The article explores the significance of compliance in establishing a risk management culture in banking institutions. The relevance of the topic is driven by the need to ensure the stability, reliability, and reputation of Ukraine’s banking system, especially amidst military aggression and the necessity for the financial sector to adapt to new challenges and risks.

It is established that effective risk management in banks is impossible without a robust compliance structure, which serves as the foundation enabling financial institutions to mitigate potential risks arising from non-compliance with regulatory requirements. The implementation of a compliance system fosters a culture of mutual responsibility and professional ethics within the banking institution, promoting ethical business conduct, timely adherence to legislative and regulatory requirements, and consideration of the interests of a wide range of stakeholders.

The aim of the research is to identify and substantiate the key role of the compliance function in shaping and strengthening an effective risk management culture in banking institutions, which is a prerequisite for financial stability, reliability, and the long-term success of banks. To achieve this goal, methods of analysis, synthesis, and systematization of scientific sources were used. An assessment of potential barriers and challenges in integrating compliance into the risk management culture was conducted.

The research results indicate that the interaction between compliance and risk management is crucial for the effective management of financial institutions, contributing not only to adherence to regulatory requirements but also to the formation of a risk awareness culture that ensures the long-term resilience of banks. The main problems of integrating compliance into the risk management culture were identified, among which the following should be highlighted: resistance to change; insufficient understanding of the value of compliance; lack of support from management; fragmentation of compliance and risk management functions; lack of resources; complexity of the regulatory environment; ineffective communication; conflict of interest. Attention is focused on the assessment and formation of a risk culture. It is determined that the elements characterizing a "strong" risk culture are timely information exchange, rapid identification of new risks, a proactive stance in risk detection, and a willingness to challenge existing practices. It is established that fostering a compliance-oriented culture within the organization through continuous employee training, encouraging their active participation, and establishing clear accountability is a critically important element of the effective interaction between compliance and risk management culture.

The prospects for further research include the role of technological innovations (FinTech, RegTech) in the transformation of the compliance function and their potential to strengthen the risk management culture.