Weaknesses in compliance, audit among lenders: RBI

The Reserve Bank of India (RBI) has found weaknesses in compliance, risk management and internal audit in entities regulated by it during supervisory exercises in recent years.

RBI Deputy Governor MK Jain said disconnect was observed between the risk appetite framework as approved by the board and actual business strategy and decision making, weak risk culture which was amplified by absence of guidance from the senior management, improper risk assessment, repeated exceptions to risk policies, conflict of interest especially in related party transactions and absence or faulty enterprise-wide risk management.


The concerns

The RBI observed failure or delay in detection and reporting of non-compliances, persisting sub-par compliance, deficiencies in compliance testing with respect to inadequate coverage, among others.

Audit process unable to capture irregularities, non-coverage of certain areas under scope of audit, compliance and audit not collaborating with each other, lack of ownership and accountability, inadequate review of practices that require alignment to address interests of all stakeholders, non-compliance or delay in compliance with audit observations were some of the major concerns identified, Jain said while addressing a meet organised by the Centre for Advanced Financial Research and Learning.

It is important to ensure financial institutions are board-driven and do not end up being dominated by individuals, he said.

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