FMS official: Administrative fines may create problems for banks' international ties

Administrative fines may create problems for banks in their international financial relations, said Azer Abbasov, Deputy Chairman of the Board of the Financial Monitoring Service (FMS) of Azerbaijan, Report informs.

Speaking at the Sustainable Business: Governance, Risk and Compliance (GRC) event in Baku, Abbasov underlined that one of today's key challenges is ensuring that compliance systems are comprehensive.

"A compliance system must protect a financial institution from sanctions, legal, and reputational risks. When I worked in this field, I always tried to understand these risks. For example, how can compliance protect an institution from legal risks in today's environment? Recent court decisions show that the rights of individuals whose identities were used to obtain loans through cybercrime are being protected because of failures to comply with compliance requirements, with courts ruling against banks. Such decisions result in financial losses for banks. In other words, courts are protecting customers by relying on gaps in banks' compliance systems," he said.

Abbasov stressed that this creates legal risks for banks: "At the same time, administrative measures imposed on a bank can lead to reputational risks. Reputational risks, in turn, may create difficulties in correspondent banking relationships.

The global financial system is highly interconnected. For example, an administrative fine imposed on a bank does not only result in financial losses. It may also affect the bank's correspondent relationships. In the future, when responding to various inquiries, banks may be required to provide additional explanations regarding the number and causes of fines imposed on them. All of this creates additional challenges for banks."