The Federal Reserve Bank of Philadelphia has issued expectations on the importance of maintaining a robust consumer compliance risk management program. Published in its quarterly Consumer Compliance Outlook, “The Importance of the Consumer Compliance Internal Audit Function” acknowledges that new technologies, product innovations, the size and speed of transactions, and increased compliance requirements have made it challenging for financial institutions to maintain effective compliance programs.
The publication makes the distinction between internal controls and the internal audit function. Internal controls are the policies and procedures designed and implemented to provide reasonable assurance that the objectives: efficient and effective operations; safeguarding of assets; reliability of financial reporting; and compliance with applicable laws and regulations are met. Internal audit is the function of monitoring and evaluating internal controls, risk management, and governance processes to ensure their effectiveness. An effective consumer compliance risk management program has both internal controls designed to ensure the institution is complying with requirements, as well as an internal audit function to monitor and evaluate the effectiveness of controls.
Some common characteristics of an effective internal audit function include:
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