RBI directs urban cooperative banks to appoint compliance chiefs by 2023

The Reserve Bank of India (RBI) has asked Tier 4 urban cooperative banks (UCBs) – lenders with deposits above ₹10,000 crore – to appoint a chief compliance officer by April 1, 2023 as part of its corporate governance standards.

The central bank has told urban cooperative banks under the Tier 3 category – with deposits more than ₹1000 crore and up to ₹10,000 crore – to appoint chief compliance offers latest by October 1, 2023.

The RBI said this circular shall be placed in the immediate next meeting of the board of directors for information and devising an implementation strategy, under the board's supervision, in a time-bound manner.

UCBs under Tier 1 — with deposits up to ₹100 crore — and Tier 2 — with deposits over ₹100 crore and up to ₹1,000 crore — shall continue to be governed under the existing guidelines.

Under the current norms, compliance is one of the key responsibilities of directors and the audit committee of the board and a senior official is designated as 'compliance officer'.

The UCBs under Tier 3 and Tier 4 categories shall treat the guidelines in the circular as a set of minimum guidelines only and accordingly frame their own guidelines taking into account their corporate governance framework, the scale of operations, risk profile, organisational structure and code of conduct, etc., the banking regulator says.

The RBI also cautioned against "dual hatting." "The CCO shall not be given any responsibility which brings elements of conflict of interest, especially any role relating to business," the central bank says.

"The CCO and compliance function shall have the authority to communicate with any staff member and have access to all records or files that are necessary to enable her/him to carry out entrusted responsibilities in respect of compliance issues," the RBI says, adding that UCBs are free to adopt their own organisational structure for the compliance function.

However, the function shall be independent and sufficiently resourced, its responsibilities shall be clearly specified, and its activities shall be subject to periodic and independent review, it adds.

Chief compliance officers shall have direct reporting lines to the managing director and chief executive officer, the RBI says.

In case the CCO reports to the MD & CEO, the Board/Board Committee shall meet the CCO at quarterly intervals on a one-to-one basis, without the presence of the Senior Management, including MD & CEO, the RBI further says.

The CCO shall not have any reporting relationship with the business verticals, it adds.