KMX Bank is a local bank in operation for over ten (10) years. The financial institution has not performed as projected due to a number of constraints. The Board of Directors has agreed to the conduct of an internal audit to ascertain the true position of the Bank with regard to operational process, compliance and risk management processes, meeting regulatory requirements. .

The ABC auditing company was hired to conduct the internal audit taking into account the following:

• Corporate policies and internal controls effected in the financial institution
• The established compliance and risk management processes/ framework
• Operational framework of the Bank
• Meeting the regulatory capital requirements

The following findings were reported, requiring urgent attention:

1. The Bank had failed to complete and submit accurate statutory returns to the banks regulatory commission to ensure that the institution was operating within the law in terms of risk and capital.

2. There were no clear corporate governance guidelines and internal controls in place to meet the requisite standards of governance set by regulatory bodies.

3. The Bank has failed to implement adequate risk management and compliance processes

You are required to:

• Discuss and make recommendations on the appropriate role that the Board of Directors should take with respect to the effective internal controls and the establishment of corporate governance guidelines (10 marks)
• Discuss the importance of the Bank meeting the requisite capital requirements; making reference to Basel Framework (1, II & II) its role/ function in meeting those requirements (8 marks).
• State the possible actions which can be taken by regulatory bodies due to a banks non-compliance with legislation. Your response should include an appropriate example. (7 marks)

The maximum word count of your responses should not exceed 1,500 words.