According to research, banks are also responsible for maintain the level of economic growth within an environment. These banks efficiently help collect savings allocating them in projects that have the highest possibility of maximum social proceeds. This capital is used to apply effectual authority over financed firms that promote advancement and development.

The same research work has also shown that bank regulations can help equally distribute income among people of the society eradicating poverty for good. These regulations can also make sure that the distribution of credit takes place among projects that have a promising future instead of those owned by families and corrupt politicians. This would result in an equal distribution of profits where the deserving can receive their fair share of money.

By adhering to best practices, banking regulations can provide human beings with the ideal society where there is no corruption and the concept of poor vs. rich does not exist. This research has lead economic policy developers to believe in the existence of an important relationship that binds banks and financial welfare together.

For example, internationally recognized financial institutions like the IMF (International Monetary Fund) and the World Bank have created checklists for best practices that pressure all countries to implement these recommendations.

When it comes to banking regulations, the Basel Committee has been assigned the task of supervising the implementation of the Basel Capital Accord that was drafted in 1988. The accord is based on three pillars. According to the first pillar, wide-ranging procedures should be developed to trim down the contribution of bank assets.

The second pillar of the Basel Accord states that individually governing agencies should be created. These agencies will help regulate the process of supervision making banks more liable to following the rules established in the accord. This will also reduce the risk of misusage financial power by reigning businesses in the market.

And finally, the third pillar focuses on the need of discipline within markets and banks. According to this pillar, banks and businesses are supposed to provide clear and correct information about their financial transactions. All transactions made should be recorded and made available to the supervising agencies on demand.

The first and foremost tool of regulations applied on banks is limiting. There must be limits set upon the amount of capital investments a bank is about to make. Credit history of the loan taker should be studied to make sure that the debtor will be able to return his loan on time along with the interests raised.

Keeping an adequate reserve in the bank will assure the banking authorities that in times of economic distress, the bank will be able to bail itself out of any kind of worst case scenario.  If a bank does not have enough funds within its holdings, it could easily go bankrupt and take its customers down with it, leaving them penniless and distraught.

Bank regulations state that according to best practices, a bank must always look out for its customers because it is their money that’s being invested on projects or given out as loans. And it is the bank’s responsibility to ensure the safety of their prime assets.

A bank’s reputation entirely amounts up to the credit rating it possesses. Therefore, a bank possess minimum credit rating to avoid being closed down by credit agencies who will deem it unsuitable for running in the economy. A bank does not only affect single individuals or corporations but also the economy as a whole in an indirect way.

Failure to comply with bank rules set up by the government can also bring about global impacts affecting banks all over the world e.g. the European Banks of Greece and Portugal etc.

The fact remains that the global and national economy of individual countries depends on the banking industry. This is why it is important that regulatory agencies are empowered with regulations and standards. This means that best practices surrounding standardization of procedures must be controlled. Though there have been times where failure to endure compliance has taken economies and banking systems to the verge of collapse.

A bank with failed compliance with banking regulations is crippled and will be close to bankruptcy. Though it may not entirely become penniless, the bank’s infrastructure will totally collapse. This will subsequently create a rippling effect throughout the country’s economy.

Instruments of Banking Regulations

1.  Capital Requirement: This instrument defines the framework with which the bank must tackle assets and capital investment. The Bank for International Settlements’ Basel Committee on Banking Supervision plays an important part at an international level. It was in 1988 that this committee took the initiative to use the capital investment system for banking. The system has since been known as “the Basel Capital Accords”. The most recent framework for best practices in capital adequacy framework is well-known as Basel III.

2.  Reserve Requirement: This instrument defines the limit of reserves (banknotes and deposits) any bank can hold at any given time. Though this regulation became less important because in recent times, emphasis has shifted to capital adequacy. In the past, the concept of reserve requirements has controlled demand and stock of bank deposits and banknotes.

3.  Corporate Governance: This instrument is meant to encourage banks to improve management through compliance with best practices. Three of these improvements include:

• To become a corporate enterprise
• To become locally incorporated
• There must be directors to ensure governance.

4.  Disclosure and Financial Reporting: Disclosing the bank’s finances is one of the most significant best practices. Banks that buy and sell in public market are particularly expected to present an annual or quarterly financial statement. This best practice has been implemented by the Securities and Exchange Commission (SEC). The Sarbanes-Oxley Act of 2002 was established to outline details that must be part of the financial report.

5.  Credit Rating System: Banks are expected to obtain and implement the current credit rating and inform investors about it. This can be obtained from any approved credit rating agency.  Besides, some banks are expected to maintain a minimum credit rating.

Conclusively, compliance with bank regulations is a best practice that impacts the economy of individual countries. A failed system subsequently leads to a global impact, because investors are indirectly affected.

According to the Organization for Economic Co-operation and Development (OECD) compliance and implementation of Basel III was mandatory in banks. The organization estimates that the GDP growth will be reduced by at least 0.05% to 0.15%. This meant that henceforth bank managers will be obliged to be informed about the liquidity condition in the market. There will be need to focus on major assets, so as to strengthen accountability. This will subsequently mitigate major losses through best practices.

Compliance with Basel III will impact European banks in a number of aspects.

-          There will be impacts on European banks

-          There will be responses by the banks

-          There will be challenges to ensure compliance with Basel III

Here is an overview of best practices European Banks are likely going to display.

Assessing Impact on European Banks

Due to new compliance regulations, banks will have to follow the Q2 20100 balance sheets. This implies that in future, by 2019 banks will need €1.1 trillion extra per capital in addition. Moreover, they will need €1.3 trillion for short term liquidity and €2.3 trillion for long term financing. Lastly, banks will be required to eliminate any acts that lead to mitigation.

The Basel III standards focus on capital and financial support. It sets latest capital target ratios that are marked out to as “7.0% of core Tier 1 requirements.” The minimum Tier 1 requirement for best practices is 4.5%, and a capital of minimum 2.5%.  The maximum limit for Tier 1 capital is 8.5%.

Furthermore, Basel III has set new standards and requirements for both short term and long term funding. Implementation of these changes will impact European banking gradually. The impacts of new compliance regulations will be seen by 2016.

New compliance regulations for European banks will subsequently affect U.S banking. There will be shortfall on the capital and funding by banks. The overall impact will also be seen on business segments in Europe and the US. Therefore, best practices in implementing Basel III have become the main focus of the new regulations for 2012.

The new regulations have been established to address some sensitive best practices that are often overlooked. These best practices include:

• Stress testing

• Early remediation requirements

• Liquidity

• Risk management

• Capital

• Credit exposure

These new regulations are somehow interconnected to those authorized by Dodd Frank Act.

Applicability of New Regulations

These new regulations are meant to be applied to:

• All banks in the United States holding companies that have assets worth $50 billon at least.

• All nonbank financial organizations designated as systematically important for companies. (The Financial Stability Oversight Council has the authority to deem companies as important or not).

Note: SLHCs (Savings and Loan Holding Companies) are not subject to compliance with these regulations, except with requirements for stress test.

In the near future, the Federal Reserve (FR) will issue regulations for foreign banking institutes and SLHCs as well. The expected regulations include:

• Leverage limits and Requirements for Risk Based Capital: Regulations governing these will be put into action in two phases. The first phase had started off in November 2011 after the capital plan rule was issued by the FR. Companies willing to ensure compliance with these regulations are expected to:

a. Produce a plan for annual capital

b. Carryout stress tests

c. Maintain sufficient capital

• Implement Surcharge on Capital: Based on the framework and methodology the surcharge on the capital must be developed. The Basel Community on Banking Supervision must be involved in supervision of best practices.

Requirements for Liquidity

Requirements will be implements by the FR in two phases:

1^st Phase

Compliance with Interagency liquidity risk management guidelines issued in 2010 must be implemented as best practices. This means that companies will be required to carry out internal liquidity stress tests and manage risks associated with liquidity.

2^nd Phase

Compliance with Basel III liquidity rules issued by the FR must be implemented for qualitative liquidity.

Stress Tests

The FR will conduct monitoring of stress tests using three scenarios in the economic and financial market. The results from these tests will be open to the public and will include information specific to the company. Supervisors at banks will need to follow some best practices to conduct successful stress tests.

These new compliance regulations for US banks are meant to improve the best practices associated with regulations.

Employees could access the bank account forms and setup their accounts for dealing with a supplier. They could setup the account and assign that bank account to those of existing suppliers. This best practice enables an employee to know whether a supplier has paid via ACH or not. At the same time, this allowed people to create fake bank accounts due to lack of best practices. After creating fake accounts, they were assigned to supplier companies through the bank form. As a result many companies paid into fictitious bank accounts. Therefore, best practices were needed to ensure prevention of the opportunity to commit fraud.

In order to handle this problem, two approaches were taken to implement best practices. These included:

1. The role of the person  with the capability to preserve the account information in the bank needed to be discussed in-dept
2. Data entry had to be reviewed thoroughly

First of all, this leads us to the most important question. Who can preserve bank account entries and maintain them with best practices?  The best way to answer this question is by identifying the qualities of the person that SHOULD NOT be given these responsibilities.

Since Suppliers are also assigned the bank information on accounts, therefore people that can access the supplier form should not be allowed bank information in the ACH form. This is what allows them to create fictitious accounts. The process of data entry about bank accounts must be handled as a clerical best practice. It must be involved an approved form or email and must be performed by someone without access to processes like; beginning the process of requisition, preparing purchase orders, ensuring payments are made or recording invoices.

Secondly, we need to know how the data review must be done to make it detailed. As a best practice, the account information and related data can be included in the key controls. Therefore companies must establish a process or method to validate the entered data for best practices. It must be accurate, complete and timely. There are two options for this:

1. Developing a custom system for workflow requiring secondary approval of entered data. The data will first be presented by the supplier or employee. Then it will be passed on to an approver who will enter the data. After this, a second verifier will assess the accuracy of the data entry.
2. There could be a manual method of controlling the process of data entry. The filled forms will need to be entered manually by a first person, and then reviewed for approval by a second person. However, this is not a best practice for adequate auditing.

To ensure proper entry of data, there is a need to assign duties as assignments to those employees that play an important role in account entry. This is a recommended best practice for banks. There are other issues related to entry of data for bank accounts and assignments in banks.

With the ease of access, the ratio of fraudulent mobile banking transactions has increased. Therefore, there are certain best practices for mobile banking security people can put into practice for convenience.  Additionally financial and business institutions are being encouraged to comply with regulations imposed by the federal government in order to keep a check on transactions.

• USA Patriot Act: All financial institutions are obligated to ensure best practice by complying with this act. It is a law which requires banks and all financial institutions providing mobile services to implement proper identification of people availing these services. As best practice institutions are required to set off security protocols with test questions and authorization PIN codes. Additionally, change of phone numbers and addresses of people and organizations using mobile banking must be updated as a best practice.
• Regulations for Money Laundering: Implementation of Anti-Money Laundering Compliance Programs is a crucial best practice. The Bank Security Act (BSA)which was introduced in 1970 necessitates monitoring and preserving records for reference to customers’ criminal activities in banking. This act is also referred to as the Currency and Foreign Transactions Reporting Act. Therefore, it is a best practice required by all financial and banking institutions to preserve records of investigations, tax evasion, terrorism and any form of criminal activity of their clients. Any transaction exceeding $10,000 cash payment must be reported in the 8300 form and forwarded to the IRS. The use of Anti-Money Laundering Compliance Programs assists officers overseeing transactions and ensures that records are maintained in compliance with government protocols.
• Manage Liabilities and Risk Allocation: There is a need to negotiate liabilities and manage risk allocation by both financial institutions and mobile services. This is the best practice which requires both parties to secure their services and protect the interest of people using mobile banking. Financial institutions are expected to properly complete and close transactions including credit cards.
  There are guidelines and details that banks need to follow as best practice to protect themselves and the clients before issuance of credit cards, ATMs, etc. On the other hand, mobile service providers are only obligated to provide the mobile services. They have limited liability and banking security, and hence banking risks management is not solely their responsibility. They are however expected by law to utilize fraud detection measures to increase security to mobile services.

Therefore, compliance with mobile security regulations is a best practice required by any business and financial institution using mobile banking.

The Basel III Compliance Professionals Association is a global community of Basel Compliance professionals which helps those interested to get their own Basel III certificates, and then informs them of the G20 efforts to regulate the global financial system, explore new careers and learn skills that will last them a lifetime.

Benefits of Basel III Certificates for Employees and Consultants

Basel II professionals applying for the Basel III certificate will be able to reap the following benefits:

• Higher Salaries – According to salary surveys, certificates are well known keys for boosting income. Basel professionals are usually paid handsome sums, and the latest certificate can help them earn even more.
• Better Job Opportunities – Basel III certified professionals will always be considered first for prominent positions in an institution. This is because their employers know that certification holders are well aware of the best practices of the industry and will steer the company away from failure and problems.
• Better Credentials – For professionals aiming at growing their careers elsewhere, having the Basel III certification on their list of achievements is a surefire way of getting a job. This is because it demonstrates the professional’s ability and shows off his or her desire to remain up to date.

How to Earn the Basel III Certificate

For professionals who seek the Basel III Certification, the Basel II Accord certificate must be obtained first. IT auditors, chief risk and compliance officers, and IT, security and management consultants are recommended to train before applying for the certificate exam. Numerous institutions offer three-day training courses while others offer virtual-led and distance learning programs. Finding and enrolling in these is easy, but retaining the material necessary for the certification exam isn’t. Therefore, applicants should practice well before sitting for it.

The process made things complicated for numerous accounting firms, especially the ones with an IT infrastructure. Many companies lost their licenses because they couldn’t comply with the process. Although there is no rocket science involved in it, many of the companies felt perplexed while adhering to the act.

Here are some professional tips on how to comply with the Section 404 of SOX easily:

Create Awareness:

The first step towards complying with the legislation is to make sure that the employees of your company are well aware of what it has. You can arrange conferences and seminars in which you can train your employees and educate them about the legislation.

Make Your Own Plan:

Since the act was implied, many companies started sharing their plans with other companies which finally created a tragic situation – many of them got their license canceled. The tip here is to always create your own SOX 404 plan and program according to your specific business requirements.

Hire an Advisor:

Possibly the best thing to do in order to comply with a much complicated legislation like the 404 is to hire an advisor. The advisor will perform monthly visits to enlighten your employees, directors and other major team players about the process. He or she can also spot out the weak areas of your company and can suggest tips on how to improve them.

Keep Room for Flexibility:

The laws can be changed any day, so you need to make sure that you have enough flexibility in your 404 SOX program to meet any changes that come up.

Here are some of the most common requirements found in nearly every bank regulation around the globe:

Requirements for the Reserve:

Each bank must comply with the reserve requirements set by bank regulations. These requirements have a specific amount of reserve which banks should have in order to demand deposits and banknotes. The reserve requirements are usually combined with capital requirements; yet, they are important to consider by the banks.

Capital Requirements:

The capital requirements clause in the bank regulation sets a structure for the banks to handle their capital in relation to their assets. These requirements are the basics of every bank regulation, and every bank must adhere to them.

Financial Reports/Disclosure Requirements:

Every bank is required to prepare and submit yearly financial statements according to the standard mentioned in the bank regulation. The bank is also supposed to get these reports audited and published for its clients to see. Also, before being published, these reports need to be attested by the authorities of the bank.

Requirements regarding Credit Rating:

The bank regulation of every country sets forth a minimum credit rating for banks to comply with. Banks need to obtain credit ratings from reputable and licensed credit rating agencies and disclose it to investors and potential investors.

Exposure Restrictions:

The exposure a bank is making regarding its assets should be limited to a certain extent as defined in the bank regulations.