1. 25 November 2009 Khadizha Gasanova Internal Control System in Russian Banks. Compliance-Control INTERNATIONAL BANKING INSTITUTE

2. Present Situation Nowadays Russian banking sector is focusing its attention on the problem of improving internal control organisation. The efficiency of control system for today is provided by putting emphasis not only on banking operations’ control but first of all on the risk assessment and implementation of professional valuation as a basis for bank’s financial situation analysis and its future development.

3. Such an intense interest towards internal control system is also aroused as a result of heavy losses made by banks during the financial crisis. Perhaps they do realise that having efficient internal control system they are able to avoid negative financial results of their activity.

4. Definition of Internal Control Internal control is the process, effected by the board of directors, internal auditors (external auditors), management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: a. effectiveness and efficiency of operations b. reliability, completeness and timelines of financial information (reporting) c. compliance with applicable laws and regulations

5. Internal Control Objectives Internal Control objectives are desired goals or conditions for a specific event cycle which, if achieved, minimize the potential that waste, loss, unauthorized use or misappropriation will occur. They are conditions which we want the system of internal control to satisfy. For a control objective to be effective, compliance with it must be measurable and observable.

6. Major Components which Internal Control consists of

7. Compliance Control The key component of internal control system is tend to be Compliance Control. The main aim of compliance control is mitigating legal and reputational risks which arise as a result of professional and ethical standards violation. This control is intended for prevention customer base decline or revenue reductions. And also, among these legal/professional risks facing financial institutions are Anti-Money Laundering (AML) Issues.

8. Compliance Control in banks is accomplishes on two levels Level 1 – compliance with external regulations which an organisation is obliged to adhere. Level 2 – compliance with internal control system requirements (which are set in order to adhere external requirements).

9. What are the duties of compliance- controller? Compliance-controller cooperates with management and other personnel in order to reveal and manage legal risk. His main task is to provide the implementation of internal control system which adequately measures and operates risks faced by the bank, and monitors the compliance with internal and external documents’ requirements.

10. Conclusion Generally today a step forward in banks' perception of necessity in forming efficient management system and internal control system has been made. But still there're many questions remaining which are important to work out (like providing integration of banking community and supervision authority approaches in different aspects). All in all, control system is an important part of banking activity, maintaining its reputation. And at any time any financial institution can't do without it.

11. Thank You for Your Attention!