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Special Correspondent: In a major regulatory overhaul aimed at strengthening governance, accountability, risk management and internal controls across the banking sector, Bangladesh Bank has issued a new set of Guidelines on the Internal Control Management System (ICMS), requiring all scheduled banks to align their internal control frameworks with the new standards by December 31, 2026.
The central bank has simultaneously withdrawn two key circulars on internal control and compliance that had been in force since 2016, marking the most significant revision of the banking sector’s internal governance framework in a decade.
Officials at Bangladesh Bank said the new guidelines are expected to significantly improve banks’ risk management, internal audit, fraud prevention and operational transparency while bringing Bangladesh’s banking practices closer to internationally accepted standards.
The Banking Regulation and Policy Department (BRPD-2) issued the circular on Tuesday, directing the chief executives of all scheduled banks to implement the new framework.
According to the central bank, the revised ICMS has been formulated to support the implementation of Risk-Based Supervision (RBS), align the country’s banking regulations with global best practices and modernise banks’ internal control systems.
The guidelines clearly define the responsibilities and accountability of banks’ boards of directors, audit committees, chief executive officers, senior management, risk management units, compliance departments and internal audit divisions.
One of the most notable features of the new framework is the mandatory adoption of the internationally recognised “Three Lines of Defence” model.
Under the framework, business units will serve as the first line of defence by managing day-to-day operations while identifying and mitigating operational risks.
The second line will comprise risk management and compliance functions responsible for monitoring adherence to policies, regulations and risk controls.
The third line will be an independent internal audit function that will evaluate the effectiveness of the overall control environment and report directly to the board’s audit committee.
Bangladesh Bank believes the model will reduce excessive dependence on management while strengthening institutional oversight and governance.
The new guidelines place significant emphasis on technology-driven supervision alongside conventional on-site inspections.
Banks have been instructed to introduce off-site surveillance, virtual audits, information systems (IS) audits, forensic audits, concurrent audits and data analytics-based monitoring systems.
Particular importance has been given to using advanced data analytics to detect unusual financial transactions, identify emerging risks and prevent fraud at an early stage.
The guidelines also require banks to establish robust whistleblower mechanisms, enabling employees to confidentially report corruption, misconduct and financial irregularities without fear of retaliation.
The central bank has introduced several measures to safeguard the independence of internal audit and compliance functions.
The board’s audit committee will now play a stronger role in the appointment, performance evaluation, promotion and removal of the heads of these departments, ensuring they can perform their duties free from undue management influence.
Banks have also been instructed to strengthen these units by recruiting qualified professionals, investing in modern technologies and arranging regular domestic and international training programmes.
Under the revised ICMS, boards of directors will be required to regularly review the effectiveness of their institutions’ internal control systems.
Audit committees must also ensure that corrective actions are taken promptly based on audit findings and compliance reports.
Bangladesh Bank believes stronger board oversight will improve corporate governance and reinforce accountability at every level of bank management.
The circular requires all scheduled banks to complete the restructuring of their internal control systems by December 31, 2026.
Banks have been instructed to review and revise their internal policies, operational procedures and organisational structures in line with the new guidelines and regularly report implementation progress to the central bank.
According to Bangladesh Bank, the new ICMS framework will strengthen transparency, accountability, risk governance and technology-based supervision across the banking industry. It is also expected to enhance depositor protection, improve banks’ ability to manage emerging risks, curb financial fraud and contribute to the long-term stability of the financial sector.
Banking experts say the reforms come at a critical time, as the sector has faced growing concerns in recent years over loan fraud, governance failures and weak internal controls. If implemented effectively, they believe the new framework could significantly reduce operational risks and help align Bangladesh’s banking system with international governance standards.