The role of internal audit in recovery and resolution planning

Introduction

US regulators continue to flex their muscles and push resolution planning as a key regulatory driver to reduce systemic risk and the likelihood of an institution being “too big to fail.” On April 13, 2016, the Federal Reserve Board (FRB) and the Federal Deposit Insurance Corporation (FDIC) (collectively, the “Agencies”) jointly determined, for the first time, that certain resolution plans submitted by domestic systemically important banks (D-SIBs) were “not credible or would not facilitate an orderly resolution”1 under the US Bankruptcy Code. Further, the Agencies issued prescriptive guidance increasing expectations for the eight US D-SIBs’ resolution plan submissions due July 1, 2017 (2017 Guidance).2

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Compliance risk management starts at the top, but depends on the front line

Low-angle view of hospital sign

Compliance would be easy—well, easier—if the Chief Compliance Officer controlled all of the business processes that create compliance risks for the organization.

In the real world, the decisions and actions that add up to compliance happen all over the organization. Business leaders make decisions while balancing multiple concerns and competing objectives. It isn’t a surprise to any seasoned CCO that compliance isn’t always the top priority. As a result, it’s up to the CCO to understand the business and to exert influence over those decisions that drive critical compliance risks. And if that isn’t hard enough, CCOs also need effective processes to identify and measure those risks on an ongoing, real-time basis.

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