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Characteristics of Compliance Risk in Banking

Author

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  • Emil Asenov

    (Department of Financial Control, University of National and World Economy, Sofia, Bulgaria)

Abstract

This paper examines the characteristics of the "risk of discrepancy" known as "risk of non-compliance with regulatory requirements" or "compliance risk" in the activities of financial institutions. Practice shows that this risk can be a source of serious losses for those of them who consciously perform practices and transactions with the purpose of avoiding regulatory requirements. In order to avert the risk of discrepancy financial institutions establish and maintain in their activities a function of observance of legal requirements ("compliance function"). The implementation of this function suggests building a system for risk management, a special status of the persons who are assigned to exercise control over the risk and a systematic implementation of programs for risk prevention. The risk of non-compliance with regulatory requirements is also present in the Bulgarian banking practice. Bulgaria’s accession to the European Banking Union requires that new European regulations, supervisory procedures, and other legal norms be embraced. This will test the institutional capacity of Bulgarian regulators and the ability of financial institutions to operate in a more complex regulatory environment

Suggested Citation

  • Emil Asenov, 2015. "Characteristics of Compliance Risk in Banking," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 20-28, December.
    • Handle: RePEc:nwe:eajour:y:2015:i:4:p:20-28
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    References listed on IDEAS

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    1. Richard Podpiera, 2004. "Does Compliance with Basel Core Principles Bring Any Measurable Benefits?," IMF Working Papers 2004/204, International Monetary Fund.
    2. Richard Podpiera, 2006. "Does Compliance with Basel Core Principles Bring Any Measurable Benefits?," IMF Staff Papers, Palgrave Macmillan, vol. 53(2), pages 1-5.
    3. Goodhart, C.A.E., 2008. "The regulatory response to the financial crisis," Journal of Financial Stability, Elsevier, vol. 4(4), pages 351-358, December.
    4. Charles A. E. Goodhart, 2008. "The Regulatory Response to the Financial Crisis," CESifo Working Paper Series 2257, CESifo.
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    Cited by:

    1. Virginia Zhelyazkova, 2019. "Environmental Accounting – Principles And Main Challenges For Financial Managers," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 13(1), pages 24-31.

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    More about this item

    Keywords

    compliance risk; compliance function; legal risk; normative acts;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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