Abstract
Assessing and reducing compliance risks can now be considered one of the core criteria for business success. While failure mode and effect analysis (FMEA) is widely used in engineering, its application in the financial sector is quite novel, primarily related to compliance risk assessment. This paper presents the results of exploratory research based on the potential application of FMEA in a focus group of compliance experts at one of the largest Central and Eastern European commercial banks. This study aims to establish a process for assessing compliance risks that builds on the strengths of both the qualitative and quantitative assessment methods. Applying FMEA based on a nominal group technique and further statistical analysis provides an opportunity to compare expert assessments and the consensus level of the participants. As a result, the similarity or difference of the assessment patterns can be quantified, providing objective feedback on the evaluation. Finally, this paper proposes lifting the detectability of failures as an evaluation dimension to the same level of importance as the probability and impact of non-compliance and using agreement testing statistical methods.
Highlights
The rapidly changing legal environment created the compliance management function to monitor external and internal regulations and manage compliance. Porter and Kramer (2011) drew attention to the fact that a business is embedded in society; a company’s success and society’s development are interrelated
This study aimed to describe a possible methodological process for monitoring grouplevel agreement on ranking compliance risks
The proposed process can be used in monitoring the level of group agreement
Summary
The rapidly changing legal environment created the compliance management function to monitor external and internal regulations and manage compliance. Porter and Kramer (2011) drew attention to the fact that a business is embedded in society; a company’s success and society’s development are interrelated. The rapidly changing legal environment created the compliance management function to monitor external and internal regulations and manage compliance. Organizational integrity means that operations follow a clear set of values that meet societal expectations. The efficient operation of compliance supports the realization of integrity by encouraging compliance with the rules. Compliance and trust are highly related (Braithwaite and Makkai 1994; Faizal et al 2017; Wong and Jensen 2020). Compliance affects international and domestic reputation, partnerships, and competitiveness (Castelfranchi et al 1998; Kaminski and Robu 2016; Heidinger and Gatzert 2018; Kim 2019). Ayadi et al (2016) indicated that specific regulatory (Basel Committee on Banking Supervision 2013) compliance has no association with bank efficiency
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