INSIGHTS for Financial Institutions Winter 2015 | Page 10

Policies and procedures provide the link between regulatory requirements, the institution’s
goals and vision, and its day-to-day operations

Achieving Compliance through
Effective Policies and Procedures

How do policies and procedures affect
compliance? Policies and procedures are
the first step to achieve compliance. In an
ever changing regulatory environment, policies
and procedures can help ensure a financial
institution addresses regulations and provides
necessary information to employees. Policies
define the “rules,” whereas procedures provide
information on the “how” and “who”.

to employees. Policies, in combination with
effective monitoring systems and other
procedures, are an effective tool to ensure
familiarity with laws and regulations.

Why do ineffective policies and procedures
contribute to non-compliance? In many
institutions, policies are created, but not
reviewed and updated timely to reflect
changes in business, products or regulatory
environment. Employees rely on policies and
procedures to be up to date and accurate to
ensure they perform their duties as required.
If policies and procedures are not updated or
are wrong, actual practices may not adequately
address compliance. Non-compliance with
laws and regulations is often a result from
management’s unfamiliarity with governing
statutes or regulations, misinterpretation
of statutory or regulatory requirements or
prohibitions, or ineffective communication

How can an organization develop effective
policies and procedures? Developing
policies and procedures can be a difficult and
daunting task, but the following approach can
help keep the process on target.

INSIGHTS for Financial Institutions

Policies and procedures provide the link
between
regulatory
requirements,
the
institution’s goals and vision, and its day-to-day
operations.

1. Identify all applicable regulations that require
policies and procedures – For each business
line and department, identify applicable laws
and regulations; then determine which require
policies and procedures.
2. Define the audience – When thinking about
the development of policies and procedures, it
is important to determine the users and what
the institution wants to accomplish. This will
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help focus the scope and depth of each policy
along with the detailed procedures.

of employees will not ensure that they are
followed. Employee training is an integral part
of having effective policies and procedures.

3. Gap assessment – Usually, some policies
and procedures already exist. Performing a
gap assessment between “what is” and “what
should be” in the policy can help to minimize the
time spent developing policies and procedures.

9. Update schedules – Financial institutions
should review and update policies on a defined
schedule. This will help ensure policies and
procedures address applicable laws and
regulations.

4. Use clear, concise simple language –
It is important for policies and procedures to
be clear and concise to reduce the “noise”
found within policies. Short, simple and
structured procedures will be easier to read
and understand.
5. Policies: The rules – Policies often are confused
with procedures, resulting in too much detail.
Policies should outline the rules, what is to
be done, who has responsibility, and what is
permitted and what is not.
6. Procedures: Tie to policies – It is important
to make this relationship explicit. Procedures
should be written in an active style and provide
guidance on how to achieve policy compliance.
7. Have an “Owner” – Every set of policies
and procedures should have an