Engineering an Integrated Compliance Monitoring Framework (ICMF): A Closed-Loop Control Approach for Financial Institutions

Abstract

The increasing complexity of regulatory environments in financial institutions, driven by regulatory expansion and heightened supervisory expectations, has exposed fundamental limitations in traditional compliance systems. Existing frameworks often operate in fragmented silos, rely on reactive monitoring mechanisms, and lack structured feedback loops for continuous improvement. This study proposes an engineering-based solution through the development of an Integrated Compliance Monitoring Framework (ICMF) using a closed-loop control system approach. This research adopts a design science methodology within a systems engineering paradigm. The approach encompasses regulatory mapping, root cause analysis, compliance architecture modelling, and the design of a control-loop mechanism incorporating sensing, analysis, control, and feedback processes. The framework integrates Compliance Management Systems (CMS), Governance, Risk, and Compliance (GRC), and the Three Lines Model (TLM) into a unified architecture. Empirical implementation demonstrates significant improvements, including full compliance coverage, enhanced monitoring accuracy, improved early risk detection, and the elimination of regulatory sanctions. The findings confirm that embedding control engineering principles into compliance systems enhances adaptability, effectiveness, and resilience. This study contributes theoretically by reconceptualizing compliance as a cybernetic control system, and practically by providing a scalable and adaptive framework applicable across financial institutions. By bridging compliance governance and control engineering, this study offers a novel interdisciplinary approach that provides a foundation for future research in compliance engineering.