This week on Innovation in Compliance, in a five-part podcast series, sponsored by K2 Intelligence FIN, we consider defining and building effective compliance programs. I am joined in this series by Michelle Goodsir, a Managing Director at K2 Intelligence, and Gail Fuller, Financial Integrity Network (FIN) Vice President. Over this series we will consider key challenges in financial crimes and anti-corruption compliance, why compliance needs a seat at the table, how to do compliance on a budget; training and what is on the horizon. You can check out the full series on the Compliance Podcast Network.
I visited with Michelle Goodsir on the biggest challenges in compliance today. We began with what are the biggest compliance issues facing banks in the US? Obviously, the Coronavirus health crisis and the attendant economic dislocation are in the forefronts of everyone’s mind. Compliance officers are struggling to keep their programs going, keeping up with their alert volumes and the regulatory filings. Now overlaid is the greater challenge of dealing with some of the emerging fraud scams that are coming out of coronavirus involving the government stimulus package, personal protection and even fishing scams.
Finally, banks are being told that they have to keep up with the regulatory requirements by their financial regulators. Regulators have distributed various guidance to banks to help them through the situation and to make them aware of various types of fraud schemes that are out in the market right now. Goodsir noted, “at the same time, they’re also very clear that the rules still apply. They haven’t changed given the situation and that banks are required to keep up with their commitments of way their compliance programs.”
It was this final point that Goodsir feels lends an added challenge for financial institutions as compliance teams are now having to work remotely. They have to still collect information on and do periodic reviews on their clients and make sure that they still understand the risks associated with their relationships. They still have to conduct transaction monitoring remotely. It all must be accomplished during a period when a number of employees are likely to be out of the office due to illness or due to a family illness or have restrictions on their time because they are working from home. It has created much more complexity to the compliance infrastructure, which already is managing a number of challenges for an organization.
We then turned to some of the global challenges emerging. Here Goodsir believes there are commonalities across US and global financial institutions or foreign banking institutions operating in the US in terms of the day-to- day challenges that they face as compliance officers. There has been some consistency in the way that the global regulators focus on AML and sanctions and their continued focus on these two types of financial crime risks globally across the board. There is still heightened attention on culture and conduct, particularly on the back of some of the scandals and other enforcement actions. She called it the “dynamic push-pull” from a regulatory standpoint. This means you want to continue to make sure that you are putting in the proper controls and being diligent instituting the regulatory requirements. But then quite often, and realistically, you’re often facing day-to-day pressures from line staff to support business and to support revenue generation.
We concluded by exploring the always timely question of how can these organizations keep pace? Goodsir believes it is important for compliance managers to keep an eye on staff turnover and absenteeism as “you need to make sure that you can keep your compliance program running to essentially the same standard as you would without a coronavirus epidemic underway.” This means your compliance team should have crisis management plans.
Goodsir concluded, “when you are in an environment where you are facing mounting cost pressures, which most compliance teams are, where everyone is essentially looking at a tightening economy, it is best to think about how you can take your existing resources and try to leverage them more broadly and look to see where compliance resources can support similar needs. This holds for all types, whether it’s AML compliance, anti-bribery or anti-trust compliance programs. You must be ready to “take those resources and apply them more broadly.””
I also chatted with Gail Fuller as we looked into that veiled land of the future and view what’s on the horizon for compliance. We began by considering what regulators are thinking about now and even the next six months, 12 months, 18 months, down the road when it comes to compliance. Fuller noted, “more than anything, regulators are looking for compliance professionals to be proactive and to be creative problem solvers. We need to always be thinking about meeting the regulatory requirement as being kind of the absolute bare minimum. This means compliance professionals need to be thinking about going above and beyond.”
All or part of your business model is always changing. It can be growing, expanding, moving horizontally because the world is always changing. Compliance professionals need to be agile and prepared for it. More importantly, “from a very pragmatic standpoint, when something does go wrong, having been prepared and being able to demonstrate that you had things in place can be helpful in terms of remediation and can be helpful in terms of getting the regulators on your side as well.” This requires proactive compliance. Fuller emphasized “the need to take innovative approaches to doing more with less and to making sure that we can meet all of our obligations despite these extraordinary circumstances.” All the federal regulators have made it clear that their expectation is for corporate compliance to be thinking about creative solutions.
We next turned to the issues of funding for compliance programs going forward. Whether it is doing more with less, doing less with less or some other approach; Fuller believes this is an “important issue that we need to think through. In economic conditions that we are facing right now, we cannot expect that that will change anytime soon. We are in the middle of a crisis and there might be a situation where banks are starting to face a backlog related to their compliance tasks. This could well strain already stressed resources at a time when Boards and senior leaders are really preoccupied with things other than compliance.”
Fuller believes “in the near term, compliance really needs to triage its priorities, make it clear that they do prioritize compliance even in this environment and reinforce the commitment at all levels of the operation to compliance.” One thing she suggested is to communicate priorities. She believes they “should be thinking about how they can face some of these challenges by dealing with the geographic distribution of their teams, dealing with strategic technologies and thinking how they can do more with less.”
We concluded by looking at some positives for a compliance function during this time, for example technology. Fuller noted that it may sound “counterintuitive to think about making technology investments right now because of the current resource constrained environment but may well be the key to long-term viability.” This is because an investment now in a technology solution for compliance “can really pay dividends in the future.” It can help overcome process inefficiencies as more effective compliance equates to more efficient business process.
Fuller believes compliance “technologies can really target critical pain points in the system that are creating resource inefficiencies.” She provided the example of false positive alerts in transaction monitoring systems or in sanctions related screening name matches. Looking for ways to employ different types of technology including artificial intelligence, machine learning, to really increase the efficiencies within the system. Additionally, regulators have high expectations around process model validation and deploying new technology solutions can reduce both time and resource intensiveness. Fuller concluded with “I know it is counterintuitive, but the technology is really kind of a key to pursuing the efficiencies that we need to do more with less.”
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