Managing Compliance Risk in Banks: the role of the Compliance Function

Abstract

This article examines the role of the compliance function in managing compliance risk within Moroccan banks. Recent financial crises and scandals have underscored the critical importance of robust compliance mechanisms in maintaining stability and public confidence in the banking system. Drawing on agency theory, institutional theory, and stakeholder theory, we investigate how Moroccan banks are strengthening their compliance functions to effectively manage compliance risks in an evolving regulatory landscape.

Our study employs a qualitative approach, utilizing semi-structured interviews with eight compliance professionals from various Moroccan banks. Thematic analysis of the interview data reveals five key themes: (1) the centrality of compliance in Moroccan banks, (2) the robustness of compliance functions, (3) challenges in implementing compliance practices, (4) interaction between compliance and other bank departments, and (5) future outlook for banking compliance in Morocco.

The findings support our hypotheses that banking compliance is central to the concerns of Moroccan banks and that they have developed rigorous compliance functions. However, challenges remain, particularly in resource allocation, cultural integration, and managing the complexity of international compliance. The study highlights the strategic importance of compliance, its role in risk management, and its integration with other bank functions.

Our research contributes to the literature by providing empirical insights into compliance practices in an emerging market context, bridging the gap between theoretical frameworks and real-world implementation. The article concludes with practical recommendations for banks seeking to enhance their compliance functions and suggests avenues for future research in this evolving field.

Keywords: Compliance Function, Compliance Risk, Bank Compliance

Classification JEL: G21, G28, G32

Paper type: Empirical Research