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Lifting your compliance culture


It has always been a vital necessity for financial services companies to ensure that they are properly training their employees in matters of regulatory compliance. But, for too long, compliance issues and compliance training have been placed in separate silos, set apart from the real day-to-day work of the bank and even from its overall goals and strategy. Compliance has been a box on a form, to be checked off every so often, so as not to incur the wrath of regulators and examiners.

But this mindset is changing. Forward-thinking bankers have come around to the notion that compliance serves a much deeper and greater purpose than simply protecting a bank’s interests in the event of a regulatory mishap. When taught properly and when used appropriately, compliance knowledge and ideals can also help energize a bank’s mission to better serve customers and improve return on investment. Indeed, creating and fostering a compliance culture is becoming increasingly necessary in order to thrive in today’s highly competitive and highly regulated market for financial services.

No More Once-and-Done

And just what is a compliance culture? It “starts with a holistic understanding that training your staff is something that is done 12 months out of the year – not once and done,” says Jerry L. Miller, a partner at Milwaukee, Wisc.-based Wipfli LLP.” It is taking compliance into account when considering the development of a new bank product or service. It is including compliance knowledge in your employees’ day-to-day jobs, perhaps even making it a game, Miller suggests. “Make understanding compliance challenging and enjoyable and more a part of their day,” Miller says. “Compliance should not be an inoculation that is done once every couple of years.”

It’s arguable that without creating a compliance culture, banks nowadays will be hard-pressed to just meet the obvious and straightforward goals of educating their personnel about the new and existing flood of regulations that are increasingly shaping the financial industry. Last year brought 223 new regulatory changes in the first three quarters of the year alone. In the wake of the 2008-2009 financial crash and Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, new regulations are still being introduced this year.

According to the Deloitte report on the top regulatory trends for 2015 in banking, banks will need to cover the waterfront in terms of broadening their focus to consider tighter enforcement around governance and risk management, consumer protection, vendor risk, resolution planning, data quality, credit quality concerns, increased cyber threats, liquidity reserve requirements, anti-money laundering and the Volcker Rule. The Volcker Rule itself, which goes into effect July 21, will require banks (based on their asset size) to enhance compliance monitoring capabilities and their use of data analysis. It’s not just that fines and penalties are increasing and examiners are more eagle-eyed in seeking out cases of bank non-compliance with rules. There’s also the fact that being cited for non-compliance can lead to troubling questions about the corporate culture that could have led to these issues in the first place. And that could lead a bank down a rabbit hole of regulatory scrutiny and public distaste that could damage its reputation and impact the bottom line.

Simply put, compliance can no longer be check-the-box training. It must move from simple proof-of-training completion to compliance competency and comprehension. And, to meet the larger goals of lifting their overall mission, bank executives need to inculcate a compliance culture into their organizations. It is important to regulators and increasingly distrustful consumers, fed up with a decade worth of headlines about financial industry corruption, to demonstrate that compliance with regulations – particularly those involving security, soundness, and credit quality – must permeate the whole banking operation from the frontline on up. It is important to show that personnel are taught and encouraged to live and breathe consumer protection as a part of their jobs.

Many bankers have been vocal about the fact that, in recent years, the pendulum may have swung too far in the direction of stringency and complexity where regulation is concerned. But the fact is, for the foreseeable future, that this is the shape of the industry to come. As a result, compliance training will need to be more comprehensive and efficient in order to convey all the information that is necessary to meet the goals of regulatory compliance. Although specific guidelines vary from bank to bank and job to job, compliance managers will need to take a sharper look at curriculum planning to ensure that all bases are covered and that each individual employee is receiving the training that he or she needs and completing it successfully. As a result, larger financial institutions may need to implement automation to stay on top of the ever-changing matrix of regulations, courses, and requirements across a broad and varied swath of employees in differing roles with diverse experience.

Fostering a compliance culture is not all pain and no gain, however. Done wisely, a compliance culture will pay off with incremental return on investment for the bank and a notably better experience for its customers. Keeping employees abreast of compliance issues represents the bank making an investment in its staff members and also keeps them from making the mistakes that could cost them their jobs – and the bank its credibility. Such compliance education can also lead to a reduction in staff churn, an improvement in customer retention and, hopefully, greater efficiency in opening accounts and processing loans. A better comprehension of compliance may also encourage the creation of new products and services that bankers may have previously avoided, simply out of lack of understanding what is permissible.

“I believe the message is out there and people are hearing it when you talk about this ‘holistic change’ in compliance,” Miller says. “This is really about changing the bank and challenging employees to rethink how they train on products and services too. It is about accountability and performance.”

Mr. Dahlgren is managing director, Learning & Development, at BAI. He can be reached at [email protected].