Do We Really Need to Have Policies AND Procedures?

by C/A Staff

Policies serve as the core of our financial institution compliance programs.  They set the standard and provide the framework for compliance in each department within the bank.  This leaves many to wonder why procedures are even necessary if there is already a plan or framework in place for compliance success. 

Simply put, policies are guidelines.  They define your financial institution’s standards or rules for different areas and departments within the company.  For instance, a policy may define a set of rules for compliance with opening new accounts.  The rule is very specific about the overall expectations for compliance, but the rule doesn’t define how to meet the expectations.  Policies are not meant to define the steps for accomplishing an outcome.  Procedures provide the tools needed to meet the expectations.  They are the strategic process needed to comply with the rules or standards which are outlined within a policy.  They are the action plan. Where the policy provides the rules for opening new accounts, the procedures give you the step by step instructions for successfully opening a new account according to the rules defined within the policy.  Procedures define how to execute a plan to achieve a result that meets policy expectations. 

Policies are more broadly defined as they provide us with guidelines; they include the what and why of an organization’s expectations.  Procedures tend to be narrower and more detailed as they include the how and who in the process to accomplish an organization’s expectations. So, when writing a policy or framework for a specific area or department within your organization, include the rules and expectations required to meet your organization’s needs as well as the state and federal requirements. Ensure your procedures include detailed steps and processes to meet your organization’s expectations.  Using template policies and procedures can be a helpful starting point when creating new guidelines.  Be sure that you are adopting policies and procedures which are appropriate for your institution specific size and risk level.  There should also be a correlation between your policy and procedures.  Defining the guidelines of your institution’s policies and procedures can be time consuming but having both are essential in effectively and efficiently operating any organization.  Both are necessary for not only the achievement of compliance within a specific area of the organization, but for the overall compliance of the organization.  Having clearly defined policies and procedures minimize the opportunity for misinterpretation and maximize the opportunity to execute and achieve.  

While policies provide guidelines or compliance goals for financial institutions, procedures serve as the plan to bridging the gap between the guideline and achieving the goal.  It’s kind of like that cliché, the only difference between a dream and goal is having the plan.  We can write the perfect policy and daydream about a flawless visit with our examiners, but without a plan to execute the guidance within our policies, our compliance success is nothing short of a dream.