What is meant by "internal audit" in banking?

The term "internal audit" in banking refers to an objective assessment of a bank's operations and compliance. It is a critical function that helps ensure the bank is following its internal policies, external regulations, and industry standards. This assessment is conducted by the bank’s own staff, rather than by outsiders, which allows for a more thorough understanding of the bank's operational risks and internal controls.

Internal audits are designed to provide assurances to the bank's management and board of directors that the processes in place are effective and that the institution is operating efficiently. This includes evaluating the adequacy of compliance with relevant laws and regulations, assessing the effectiveness of risk management practices, and examining the overall governance framework within which the bank operates.

By focusing on internal operations, internal audits help identify areas for improvement, ensuring that the bank can achieve its objectives while minimizing risks. This proactive approach supports the financial institution's long-term sustainability and compliance with regulatory requirements.