Ranee says time to change

Calls for multifaceted approach by all stakeholders in financial services industry to face governance, risk management and compliance

Central Bank’s Deputy Governor Dr. Ranee Jayamaha has stressed that it was time to change urging all stakeholders in financial services industry to pursue a multifaceted approach to deal with governance, risk management and compliance.

“Now is the time to change. There should be a multifaceted approach to face the Governance, Risk Management and Compliance (GRC) challenges. GRC should be treated as one package or a set. This approach includes governance, built on Principles and Rules, Integrated Risk Management Mechanisms to identify, assess and mitigate risks and a defined compliance mechanism that deals with internal and external compliance requirements,” Ms. Jayamaha said during her keynote speech at the seminar on “Governance, Risk Management and Compliance and the Roadmap for Financial Services Industry” held last week.

She said the financial institutions have the responsibility to establish a compliance mindset throughout the organisation as a foundation that places high regard on ethics, trust and values. Energies that are used by some banks and financial institutions to design ways and means of flouting instructions and defying directives should be diverted to observance of governance and compliance. In her speech she highlighted the challenges that financial institutions could encounter in implementing GRC amidst ongoing increasing globalisation, continuously changing laws and regulations, various forms of financial stresses and continuous evolution of complex financial products. These challenges, she emphasised, underscore the importance of compliance and best practice, which have already been set by the financial services industry regulators and supervisors as well as the international standard setters.

In the present financial industry environment, where the stakeholders and other interested parties put pressure for greater transparency and corporate responsibility, the Board of Directors and senior management have to set high standards in all aspects of GRC. The increase in investments to improve the IT infrastructure and human resources to integrate GRC management can improve risk management as well as compliance performance and its efficiencies, she said. The financial institutions that have strong governance and compliance processes in an integrated GRC framework will be more capable of winning public confidence, attracting investors, improving corporate reputation and efficiency, as well as contributing to promote financial system stability.

“It is also important to note that markets and investors are much more vigilant than banks and financial institutions themselves. They may watch global events with bemusement or with justified suspicion and feel that nothing is straightforward anymore. We need to reduce such feelings in the public in our country and instill confidence in them,” Ms. Jayamaha stressed.

Given the severe impacts of the recent sub-prime crisis and low quality credit decisions in the US and Europe and large frauds in international banks, it is important that the financial services industry and the regulatory community reflect on what additional precautionary efforts should be initiated to ensure that Sri Lanka’s financial services industry continues to function as a stable and resilient one.

She noted that the year 2008 has started off with the continuation of some of the challenges that resulted in significant disturbances in world financial markets: the impact of the sub prime market turmoil which originated in the US is still spreading across Europe and other financial markets; the Northern Rock crisis in the U.K. has raised serious regulatory issues; and the large frauds in global banks have highlighted the repercussions of the lack of internal controls and accountability in financial institutions.

“As in the past, many of these have been due to lapses in governance and risk management practices. Although Sri Lanka’s financial markets have been insulated from these disturbances, they underscore the need for good corporate governance, better risk management and compliance in our financial industry,” she said. “It is also important for us to learn from the bitter lessons experienced by others as our financial services industry too is tempted to provide low quality credit, which has been the root cause of the subprime issue,” Ms. Jayamaha added.

In that context she expressed hope that the seminar would lead to the preparation of a roadmap, which would help to promote a competitive, resilient and dynamic financial sector with new initiatives on Governance, Risk Management and Compliance.