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Meeting the compliance challenge on the frontline


As regulatory pressures continue to mount, financial institutions are looking to their frontline staff to act effectively as their first line of defense when it comes to ensuring that the bank is acting in a compliant way with customers and discovering potential problems or bad actors in their own day-to-day operations.  That was one of the conclusions reached by an executive roundtable of compliance officers held at BAI Retail Delivery 2015 last October.

Viewpoints at the roundtable came from senior-level bankers with backgrounds in compliance, training, risk and general management. The diversity of experience represented at the meeting is indicative of recent trends in bank compliance. Compliance is no longer contained within a centralized department – it has become the concern of executives with diverse roles within banks.

Moving from centralized knowledge to dispersed knowledge is challenging. Many more people require training. Opportunity cost becomes a concern. Across a bank, the cumulative number of hours of training can become significant. Those dedicating the time to training are also responsible for delivering revenue and service for the bank in a very challenging environment. As a result, efficient, role-relevant training is in high demand as bankers realize that increasing institutional compliance knowledge can lead to better service and more revenue.

Eyes and Ears of Customers

In the wake of the BAI Retail Delivery 2015 discussion, we circled back to some of the participants to further probe their views on these issues. They agreed that that regulatory oversight has become too big and too broad an issue for full-time compliance employees to handle all by themselves, even setting aside the fact that these roles are difficult enough to fill given the demand for this skill set. With this in mind, many banks are resolving to get their frontline employees involved in compliance as a part of their job.

“The frontline is our eyes and ears on the customers,” says Manuel Alvarado, director for retail compliance for Union Bank of San Francisco, Calif. “We need to make sure we properly train them so that they understand the role of compliance – which is difficult because we do expect so much and there is so much frontline turnover.”

As Alvarado points out, banks are not looking to make their branch-based employees such as tellers into compliance officers, but rather to make sure they clearly understand the rules and the processes necessary to meet the ever-growing volume of bank regulations. To that end, Union Bank is offering incentives and conducting more scenario-based training, both in-person and online, to help inculcate frontline employees in compliance.

“We need to build it in in a smart way,” says Alvarado, adding that the real-world scenarios especially help with giving employees a better view of how compliance issues can arise in a typical customer interaction.

Ed Dwyer, chief risk officer for community banking and branch delivery at Minneapolis-based U.S. Bancorp, agrees that it is increasingly important for frontline employees who understand risk management. Dwyer himself spent the vast bulk of his 25-year career at U.S. Bank in revenue management before the vice chairman of the consumer bank asked him to take on the role of chief risk officer, despite the fact that he lacked a background in compliance, risk or audit.

“The vice chairman said he would rather have somebody in this role who already understands the way U.S. Bank does business and can learn compliance,” Dwyer says, drawing a parallel between his position and that of frontline employees who must handle compliance in the context of the bank’s day-to-day business operations.

“Every employee must learn a fair bit about compliance,” he adds. “There is always a baseline of knowledge required, whether you’re a bank president or on the frontline or in marketing.” In fact, every employee of U.S. Bank, no matter what position or previous experience in banking, is required to take compliance training within their first 90 days at the company.

Check and Balance

The first step in working with frontline employees on compliance risk involves making sure they have a clear understanding of their responsibilities, Dwyer says, noting that U.S. Bank maintains a “constant check and balance embedded in the operation” between selling products and serving customers, with a focus on ensuring that customers are not pushed into inappropriate products.

The next step is making sure that the employees convey to customers what they need to know to engage in a particular transaction or utilize a bank product, according to Alvarado at Union Bank. Such issues typically involve Office of Foreign Assets Control (OFAC) or anti-money laundering (AML) compliance but can go beyond that. With the aging baby boom population, for example, frontline bank employees have a regulatory and ethical responsibility to spot and report, when appropriate, potential signs of elder financial abuse and fraud, Alvarado says.

Jerry Miller, partner at Milwaukee, Wisc.-based Wipfli and moderator for the Retail Delivery 2015 executive session, says that it has been “a real challenge for banks to find individuals who are trained in compliance because there is a real shortage of trained staff in the marketplace, and that is true across the country.” As a result, compliance officers with the greatest experience and track records are often hard to retain, especially on the frontline, since they are often the recipients of attractive offers from other departments or financial institutions.

“If a bank is hiring for a position and someone comes up on the radar with compliance training, that person is getting the first interview,” Miller says.

Given the tremendous demand for branch employees who can understand the nuances of compliance, it’s not surprising that many banks look to poach from competitors. Dwyer says that when he needed to make some hires recently, he welcomed candidates from other banks, particularly from the very largest institutions that have committed a lot of resources to compliance training. “If someone comes to us with a background in OFAC, Bank Secrecy Act (BSC) and AML, they could write their own ticket,” he says.

However, bringing over employees from other banks has its limitations, given the fact that banks can only pay so much to fill frontline positions. That means that many institutions are building compliance-savvy frontline staff from the ground up. “You have to invest in compliance training immediately,” Miller says, recommending that banks look to local universities to create courses on banking compliance so that students who want to pursue banking careers can enter the frontline with an up-to-date knowledge of regulatory compliance.

Beyond hiring well, banks must focus on creating a “culture of compliance” that includes the frontline, Miller says. To foster this, he suggests that in addition to correcting or warning employees who handle a regulatory situation incorrectly, bank managers and compliance officers should “catch people doing the right things” and reward them with a gift card, a small bonus or simply recognition in the weekly company newsletter. “Making compliance part of the bank’s culture means not having frontline staff see it as a punishment or something to stress about – it should just be part of their job,” Miller says. 

Finally, some of the regulatory-related messaging needs to come from the bank’s CEO or executive management to make sure it sticks with frontline employees, Alvarado says, noting that even the newest frontline staff member needs to understand why compliance is critical to the bank’s business. “We want them to know it’s not a burden for the business,” Alvarado says. “We need frontline staff to understand how compliance is good risk management and good for our business.”  

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