Why are audits important in the context of bank compliance?

Audits are crucial in the context of bank compliance because they ensure that all regulations and legal requirements are being followed. By systematically reviewing and evaluating a bank's processes, policies, and transactions, audits help identify any potential areas of non-compliance, thereby protecting the institution from legal penalties, financial losses, and reputational damage. This functional role promotes a culture of accountability and transparency within the organization, as it allows banks to demonstrate due diligence and adherence to regulatory standards which are essential for maintaining trust with customers and regulators alike.