Governance, Compliance, Whistle-blowing and Fraud Prevention Ethics
What this domain tests
Governance, Compliance, Whistle-blowing and Fraud Prevention Ethics tests the control environment-board oversight, compliance culture, protected disclosure and fraud response-and the ethical choices that keep controls honest.
Core rules and concepts
- Governance: the board sets tone at the top, approves strategy and risk appetite, and uses independent directors and audit/risk committees. 'Fit and proper' criteria, related-party transaction rules and conflict-of-interest policies prevent abuse.
- Three lines of defence: business owns risk; risk and compliance monitor; internal audit independently assures. Compliance is everyone's duty, not only the compliance department's.
- Whistle-blowing: listed companies must provide a vigil mechanism under Companies Act 2013, s.177(9) and SEBI LODR Regulation 22; banks also maintain internal vigilance channels. A good mechanism protects confidentiality, allows anonymous or named disclosure, prohibits retaliation and investigates promptly.
- Fraud prevention ethics: understand the fraud triangle-pressure, opportunity, rationalisation. Use segregation of duties, maker-checker, rotation, early-warning signals and Know Your Employee. Concealing or delaying a fraud to protect the branch is itself misconduct.
- Investigation ethics: presumption of innocence, confidentiality, due process, evidence preservation and fair reporting.
Worked example
An officer notices a colleague processing loans without maker-checker approval and tells the branch manager, who says 'we will fix it before inspection'. The officer should report through the whistle-blower or vigilance channel. Reasoning: concealment allows the fraud to continue and destroys evidence; the manager's instruction is itself a governance breach. The bank must protect the reporter from retaliation and investigate independently.
Traps
Treating whistle-blowing as disloyalty; assuming fraud is only external; leaving compliance to one department; not reporting small frauds; using confidentiality as a reason to suppress disclosure.