Your financial institution (FI) has countless policies, but are you using them effectively? Are you maximizing your policy development for the best results?
Policies are essential governance tools. When crafted, monitored, and appropriately communicated, policies are more than checklist items; they become living, breathing documents that establish critical risk management principles and drive a thriving compliance culture.
As your FI continues to face shifting regulations, emerging technologies, and other changes, consider how these tips can help you take your policy development process to the next level and turn challenges into opportunities.
Related: 6 Essentials for Flawless Policy Management
Don’t include procedures in policies
Adopting a sample policy isn’t just about what you include – it's also about what you leave out. And when it comes to policies, you need to leave out the procedures.
Every FI is on a journey to meet its strategic objectives, which are backed by its mission, vision, and values. If your policies are your organization’s map (or GPS), the procedures are the turn-by-turn directions to get you where you’re going.
While the procedures (or steps) are integral to reaching your destination, they should stay separate from your policies. A critical mistake is to conflate the two by embedding procedures within policies. For example, a wire transfer policy might focus on identifying suspicious activity, while the procedures would detail how to review transactions and analyze customer behavior.
Separating policies from procedures enables more efficient management, better compliance, and easier updates. Procedural changes across staffing, processes, and vendors can happen at anytime. When policies and procedures are combined, your financial institution must update, review, and reapprove them more frequently than once a year.
As you reevaluate your existing policies and implement new ones, ensure the procedures are separate. While it can be tempting to include the “how” when you’re feeling pressure from other team members and board members to execute a plan quickly, mixing the two is a recipe for confusion and inefficiency.
Related: Are Your Written Lending Policies Keeping Pace with the Economic Environment?
Avoid legal jargon
We’ve all read documents that were difficult to understand and wondered: What does it mean?
Clarity is non-negotiable in policies. Ensure documents are written in clear, understandable language so everyone at your FI can grasp what’s required, ensuring better compliance and smoother operations. Using regulatory jargon or unnecessary words adds a layer of complexity to your policies. It confuses employees, leading to mistakes and inefficiencies, as well as taking time away from serving customers and members and growing your business.
Related: 10 Must-Have Elements to Include When Drafting Policies
Communicate the policies effectively
Policy communication is crucial to reasserting the board’s decisions and risk appetite. Too often, financial institutions view policies as mere formalities rather than actionable guidelines, leading to employees who are either unaware of existing policies or don’t consider them essential, creating compliance weaknesses and gaps that impact the broader organization.
Policies play an important role in risk management because they serve as risk controls. Failing to follow policies undermines risk management by increasing the likelihood of regulatory violations, operational failures, and security breaches, ultimately exposing the organization to financial, legal, and reputational risks.
Communicating policy information is essential. Good policy management requires top-down policy communication and integrating policy education into employee training sessions.
Related: Are Silos Stunting Your Risk Management Efforts?
Ensure policy consistency across the organization
A crucial component of keeping your team members updated on the latest developments is having a consistent, streamlined approach to creating and storing policies. While every policy will look different based on its topic and specific goals, some sections — such as the overview, scope, applicability, and requirements — should be reflected in all your FI’s policies. Consistency aids in developing much-needed cohesiveness throughout all areas of the FI, contributing to the understanding and implementation of policies.
A centralized repository can improve policy access and empower employees to always have access to the most up-to-date guidelines. When everyone, including frontline employees, knows the impact of the policies on the organization and where to find them when there is a question, they can align their actions and tasks to meet the requirements, better serve customers and members, and identify emerging risks before they escalate.
Related: 4 Ways to Streamline Your CMS
Consider change management
Regulations change often, so having a structured approach to tracking and analyzing these changes is essential to keeping your FI’s policies current. Regulatory change management is how you identify, evaluate, and implement new or amended rules and regulations.
As you update and implement new policies, evaluate your FI’s current change management processes. Do you have a systematic process for identifying relevant regulatory updates? Do you have a business impact analysis to illustrate how a specific change will impact your institution? Without the proper change management process, your institution can get caught up in irrelevant regulatory noise or fail to utilize your resources to mitigate the most pressing risks.
Change management is an overwhelming, cumbersome process for many FIs. An automated compliance management solution can streamline your workflow through automated regulatory updates, regression analysis, customizable sample policies, and other helpful features.
Learn more: Compliance Management Buyer's Guide
Stay adaptable
Your policies should be flexible but not breakable. In other words, you need a dynamic approach to policy management.
Establish systematic review cycles rather than waiting for audit findings or a yearly assessment to make changes. If user feedback or assessment findings reveal that your policies need updating, take action to address those gaps.
Designing policies with built-in flexibility will help your FI navigate rapid regulatory and tech-related changes. Compliance management software can also streamline policy management by automating review cycles, tracking new changes and versions, sending notifications, and ensuring consistent formatting.
Related: Policy Management Pain? Here’s How Financial Institutions Can Fix It
Taking the time to properly update, manage, and communicate policies can seem overwhelming, but these steps are crucial in your policy development process. As your FI faces new challenges, stay creative and ready to turn roadblocks into strategic pathways to a stronger, more resilient institution.
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