For financial services organizations, compliance education is a necessary and regulatory requirement. Due to the mandated nature of compliance training, many organizations often consider it a burden and approach it with a “check-the-box” mentality that reinforces a perception held by some financial services leaders: that compliance training is a time-consuming process.
Consequently, financial services organizations focus on learning just enough to merely pass the course exams. However, BAI sees a cultural shift where financial services leaders are using compliance training to build a culture of responsibility around complying with financial regulations. Regulatory requirements impact every role in the organization differently and so financial services organizations are shifting to a decentralized model where instead of placing the responsibility of the compliance officer only, employees are trained to truly “own” compliance and understand its role in day-to-day activities. Beyond creating a culture of responsibility around compliance, financial services leaders should carefully consider the return on investment of an effective compliance training program.
The current cost of compliance
Compliance training like all internal business processes can be expensive if not managed properly; however, the cost of non-compliance is much steeper. There are a variety of different ways to calculate the cost of compliance. Most estimates that take into account the staffing, policy creation, process changes, technology and training costs put the annual expense for the financial services industry around $270 billion.
Staffing for compliance across the financial services industry has almost doubled within the past five years to keep pace with volume of new financial regulations—resulting in a continued increase in compliance expenses. Financial services organizations typically spend 4 percent of their total revenue on compliance and this percentage is anticipated to rise to 10 percent by 2022 according to a survey by Duff & Phelps.
Multiple surveys by BAI, Thomas Reuters and Accenture also confirm compliance budgets collectively are still expected to rise, despite the new government administration and regulatory slowdown. This rise in costs of doing business adds another pressure compounded by an increase of industry threats, from identity theft to cybercrimes and more. According to a 2018 industry study by Accenture, the average number of security breaches per company has more than tripled over the past five years, from 40 in 2012 to 125 in 2017, and global lenders have paid more than $321 billion in regulatory fines since the financial crisis.
How to ensure a positive ROI on compliance training
To truly measure the return on investment, financial services leaders must have a clear understanding of what the investment needs to achieve. These leaders should consider asking themselves, “What are our compliance training goals and what are the benefits of achieving them?”
One top concern is the collective time it takes to complete compliance training. This has led some leaders to shift their training strategy to focus increasingly on training speed. But that puts the organization at risk of requiring too little training to be effective. No organization wants to assign too little; be non-compliant; put the organization at risk of making mistakes; generate customer complaints; fail a compliance audit; receive regulator fines; or generate bad publicity associated with these issues.
When determining the necessary steps to enhance ROI on compliance training, financial services leaders should focus on the following:
1. Identify the organization’s compliance goals.
Set a quantitative measure of reducing your training time. Inventory customer complaints and employee mistakes and set measurable reduction rates of key problem areas from the previous year. Leaders should not focus on specific, individual regulation changes such as TRID, HMDA, BSA/AML or Regulation Z. Rather, seek to put plans in place that apply to any regulatory change.
2. Look at the data already available.
Collect the average time employees spend taking compliance courses. Identify areas of weakness that can be addressed. Analyze the comments and feedback auditors have identified regarding the organization’s compliance standing. Understand in detail the process errors or crimes typically targeted by you and your peer institutions. By assessing and understanding the challenges currently facing the organization, leaders can work to align the compliance goals with addressing these issues. The most successful organizations quantify the value of the findings to understand the monetary value associated with reducing problem areas.
3. Implement new training techniques, such as role-based courses.
Targeted courses that focus on the parts of regulation that an employee in a specific role encounters in his/her daily work will help reduce training time, increase productivity and minimize risk. BAI documented up to a 50 percent reduction in training time in organizations that incorporated role-based training into their compliance programs. Incorporating this approach in their compliance program, leaders will see a significant impact on their ROI.
Putting it all together: Efficient, effective empowerment
With more efficient, effective training, employees can be empowered to make the right decisions that protect the organization, provide top-of-the line customer service and positively impact the bottom line. Financial services leaders are most effective when they factor into their decisions the cost of non-compliance, while evaluating whether an organization has an opportunity to invest in more cost-effective and efficient courseware. The right training program provides financial services leaders an opportunity to create an empowered compliance culture focused on responsibility rather than fear.
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Ed Marcheselli is managing director of Learning & Development of BAI.