Research On The Compliance Risk Management Of Chinese Commercial Banks

China has been enjoyed a rapid economic growth during the past10years. With thehelp of the booming economy in China, the business scale of China’s banking industry isstarting to catch up with the multinational banks in Europe and America. For these domesticcommercial banks in China, the rapid economic development not only benefitted their rapiddevelopment of business size and profit amount, but also covered their shortage of the riskmanagement and internal control. In one aspect, the risk may be covered in good economiccondition, and will finally be exposed when the economic growth rate goes down. Thebusiness of steel trading, solar photovoltaic manufacturing and shipbuilding was consideredas the industry of the future, and now that scheme has lost its shine due to the economiccycle. The sales amounts of these corporations have fallen sharply, and it has already impactthe major banks of these companies. The risk transmission between banks and thesecompanies has caused wider worries. In another aspect, in a good economic environment,banks can cover their risks by their operation incomes, by which banks can beautify theirnon-performing loan ratio. Unfortunately, we are suffering a global demand weakens anddomestic investment slowdown from2011, and China is starting to promote economicrestructuring. In such circumstances, the China’s domestic banks have to change theirdevelopment pattern, and increase their ability of risk controlling. Considering the increasingcase number in China’s banking industry, the change has to carry out immediately.The compliance risk management is considered as the core of risk managementactivities in a bank, and for a long time the domestic banks hasn’t paid enough attention toit. In the new economic condition, it becomes especially important for China’s domesticbanks to improve their compliance management. In current stage, the domestic banks inChina made some achievement in this area. For example, the regulation of compliancemanagement has been made, and the compliance department has been established. Due tothe short history of compliance management research in China, the compliancemanagement in China’s domestic banks still has long way to go. The compliancedepartment hasn’t been putted into good use, and the domestic banks need to continue theirstudying on the compliance risk management. The goal of this essay is to discuss the way of improving the compliance risk management in the domestic banks of China.The paper is divided to seven parts. The first part brings about the background andreason of choosing the subject, and introduces the thinking process of this research. Thesecond part introduces the related theories and the research achievements of thecompliance management domestic and overseas. The third part talks about features ofcompliance risk management and roles of the compliance department, the relationshipbetween the compliance risk and other related risks, and the separation of duties betweenthe compliance department and other functions. The fourth part introduces the currentsituation of the China’s domestic banks’ compliance risk management practice and themain shortage in these banks. By a real case happened in2012, I tried to demonstrate thesemajor problems in China domestic banks, which include failing to practice compliancefrom the top management, not having a proper compliance culture, having problems in thecompliance management structure, and not connecting the compliance management withthe daily business process. In the fifth part, I compared the management practice ofdomestic banks with some international banks, and tried to find a solution to improve thecompliance risk management in China commercial banks. In the sixth part, i designed threesteps to improve the management of compliance risks in domestic banks, and emphasizedthat we have to solve the problem step by step according to the importance of problems. Inthe meantime, i suggested the measures to solve the major problems of current compliancerisk management practice in domestic banks. The first measure is to define theresponsibilities of compliance risks, especially the responsibilities of the management level.The second measure is to establish a professional team, and clear the right andresponsibility of the team. The third measure is to make prior control by the compliancedepartment. The seventh part is the conclusion. In this part, i summarized the researchcontents, major work and its significance. At last, i bring forward the shortcomings of thepaper and the problem which need a further research.