Regulation of Compliance Functions in Finnish Banks - Potential Implications to Banks' Legal Departments

Abstract

In the Finnish banking industry, there are practically two different basic models to organize a compliance function: • a legal department is also responsible for a compliance function or • a compliance function is organized either as an independent compliance department or as part of some other department than a legal department, for example, as part of a risk management department. In this article, we explore what are current regulatory requirements on compliance functions in Finnish banks and what potential implications those requirements have especially in relation to banks’ legal departments. We conclude that the regulation brings along a need to distinguish legal tasks from compliance tasks regardless of the organisational model chosen. The separation of legal and compliance functions to different organisational units makes this distinction even more important in practice. We also conclude that, due to the independency requirement of a compliance function, placing a compliance function within a legal department creates a need to make sure that it suits to in-house counsels’ traditional advisory role and their remuneration principles. Furthermore, placing a compliance function within a legal department may also lead to a need to consider to what extent the activities of the legal department should be subject to internal auditing. And finally it also, in a way, brings the department under the scrutiny of the financial supervisor.