The RBI (Local Area Banks – Compliance Function) Directions, 2026, issued on
July 31, 2026, establish a standardised compliance framework for Local Area Banks
(LABs) to strengthen governance, compliance risk management, and regulatory
oversight.
The Directions require the Board and Senior Management to oversee compliance
functions, approve a Compliance Policy, and ensure an independent Compliance
Department headed by a qualified Chief Compliance Officer (CCO). The CCO
must have defined tenure, direct access to the Board/ACB, and freedom from
business responsibilities to maintain independence.
LABs must implement compliance monitoring systems, conduct regular risk
assessments, provide staff training, maintain compliance culture, and ensure
periodic reviews of the compliance framework. The Directions replace earlier
compliance guidelines while preserving actions taken under previous provisions.
