Compliance Today – Fire Drill or Strategic Initiative
Today, most bankers view compliance as an ever-rising cost of doing business. This opinion is understandable given that the industry is seeing increasingly more regulations, record keeping requirements, and tighter regulatory scrutiny. Unfortunately, many banks are responding with a knee-jerk reaction- hiring more compliance staff.
Instead of quick, often pointless reactions, what if your bank looked at compliance through the lens of opportunity? You could develop a bank where operating processes are constantly improving, efficiencies are identified and implemented, and a possible competitive advantage is achieved.
Let’s take the opportunity to explore the unknown- a situation in which compliance processes and procedures will help a bank improve its profitab]ility. And, it doesn’t require a bank to be under or overly compliant. It’s true: 100% compliance, and effective management of all risks and processes, leads to new levels of long-term share value growth.
New Approaches = New Results
Foremost, senior bank management, as well as the board of directors, must communicate a positive tone for how the compliance function is viewed within the organization. If your staff views compliance as “bad” or a “waste of time,” your bank will clearly not benefit from any of the positive benefits that will stem from 100% compliance.
On the same note, you must make sure your compliance management group is actively involved in decision-making in an advisory capacity, particularly where it involves new products or business lines. They should also help integrate compliance requirements into business processes and systems. This will lead to better opportunities for compliant operations and for establishing effective compliance monitoring capabilities. Having compliance personnel participate in the bank’s budgeting process will help ensure compliance requirements are fully addressed in the bank’s planning process.
However, you must first make sure the compliance function has adequate resources to effectively do its job. Without proper compliance resources and technology, the bank exposes itself to a higher likelihood of compliance problems. Of course, defining “adequate resources and compliance technology” depends on many factors related to your bank – size, mix of business, markets, customer base, branch network, strategies, product sales, etc. Fortunately, you can, and should, automate compliance monitoring where possible. Minimizing manual reviews is an obvious resource saver, but this also requires that your bank have strong and usable systems-generated reporting for documenting effective compliance reviews. Most technology service providers have user groups where the bank can contribute its experiences and learn how other banks are using technology to monitor for compliance. There may also be opportunities for the compliance function to create synergies with the bank’s internal audit and loan review functions. Better leveraging the resources will generate a more robust compliance review process.
Many banks often don’t want to spend the money, but it is absolutely essential to regularly provide compliance training for your staff, including the Board of Directors and senior management. It is not a perfunctory task; it is a substantive activity. There are numerous vendors that provide comprehensive web-based training services that can be completed by employees at times that don’t disrupt regular operations. Your compliance staff is also a great resource for supplementing such online training, and can provide more detailed training for customer-facing staff. You need to demonstrate to examiners that the bank is actively training employees, and is quickly following up with supplemental training when problems are identified. You can also designate your compliance staff as Subject Matter Experts (SMEs) on particular regulations and distribute a contact list outlining this information to all staff. Regular compliance newsletters can also be a valuable and cost effective tool in providing additional information to reinforce key training and regulation-required issues.
Compliance – A Cultural and Attitudinal Issue of Monumental Significance
A strong compliance culture will help educate customers. A knowledgeable and confident staff has the confidence to explain various fees and procedural requirements to customers in an understandable, non-threatening way. The bank patrons will appreciate the patience and time they were provided and that will, of course, lead to better word-of-mouth business development opportunities.
Just as well, your bank needs to be proactive in monitoring new compliance regulations and industry trends. For example, the Dodd-Frank legislation will require the maintenance of high quality loan documents and sound data integrity. Your compliance staff can help to ensure acceptable data standards pursuant to such legislation are being practiced throughout the bank.
Revisit your customer communications. There may be opportunities to more efficiently deliver required compliance notices electronically, rather than through traditional mail, which will reduce costs. Also, social media is becoming an increasing communications channel between the bank and its customers. Compliance needs to monitor such communications to proactively identify and investigate potential compliance problems that may be being discussed there. And, it is crucial for the staff member in charge of managing your social media outlets to be trained on what is appropriate to post, and how to best respond to both pleased and disgruntled customers.
Finally, you absolutely, positively, must engage with your regulators. Before adding new products or changing features of existing ones, reach out to the regulators for advice and direction. The regulators are often perceived as the bad guys, but they will truly provide knowledgeable feedback and regulatory interpretation, which will help you to avoid potential compliance pitfalls. Really, the regulators should – and could – be your best friends.
Today, most bankers view compliance as an ever-rising cost of doing business. This opinion is understandable given that the industry is seeing increasingly more regulations, record keeping requirements, and tighter regulatory scrutiny. Unfortunately, many banks are responding with a knee-jerk reaction- hiring more compliance staff.
Instead of quick, often pointless reactions, what if your bank looked at compliance through the lens of opportunity? You could develop a bank where operating processes are constantly improving, efficiencies are identified and implemented, and a possible competitive advantage is achieved.
Let’s take the opportunity to explore the unknown- a situation in which compliance processes and procedures will help a bank improve its profitab]ility. And, it doesn’t require a bank to be under or overly compliant. It’s true: 100% compliance, and effective management of all risks and processes, leads to new levels of long-term share value growth.
New Approaches = New Results
Foremost, senior bank management, as well as the board of directors, must communicate a positive tone for how the compliance function is viewed within the organization. If your staff views compliance as “bad” or a “waste of time,” your bank will clearly not benefit from any of the positive benefits that will stem from 100% compliance.
On the same note, you must make sure your compliance management group is actively involved in decision-making in an advisory capacity, particularly where it involves new products or business lines. They should also help integrate compliance requirements into business processes and systems. This will lead to better opportunities for compliant operations and for establishing effective compliance monitoring capabilities. Having compliance personnel participate in the bank’s budgeting process will help ensure compliance requirements are fully addressed in the bank’s planning process.
However, you must first make sure the compliance function has adequate resources to effectively do its job. Without proper compliance resources and technology, the bank exposes itself to a higher likelihood of compliance problems. Of course, defining “adequate resources and compliance technology” depends on many factors related to your bank – size, mix of business, markets, customer base, branch network, strategies, product sales, etc. Fortunately, you can, and should, automate compliance monitoring where possible. Minimizing manual reviews is an obvious resource saver, but this also requires that your bank have strong and usable systems-generated reporting for documenting effective compliance reviews. Most technology service providers have user groups where the bank can contribute its experiences and learn how other banks are using technology to monitor for compliance. There may also be opportunities for the compliance function to create synergies with the bank’s internal audit and loan review functions. Better leveraging the resources will generate a more robust compliance review process.
Many banks often don’t want to spend the money, but it is absolutely essential to regularly provide compliance training for your staff, including the Board of Directors and senior management. It is not a perfunctory task; it is a substantive activity. There are numerous vendors that provide comprehensive web-based training services that can be completed by employees at times that don’t disrupt regular operations. Your compliance staff is also a great resource for supplementing such online training, and can provide more detailed training for customer-facing staff. You need to demonstrate to examiners that the bank is actively training employees, and is quickly following up with supplemental training when problems are identified. You can also designate your compliance staff as Subject Matter Experts (SMEs) on particular regulations and distribute a contact list outlining this information to all staff. Regular compliance newsletters can also be a valuable and cost effective tool in providing additional information to reinforce key training and regulation-required issues.
Compliance – A Cultural and Attitudinal Issue of Monumental Significance
A strong compliance culture will help educate customers. A knowledgeable and confident staff has the confidence to explain various fees and procedural requirements to customers in an understandable, non-threatening way. The bank patrons will appreciate the patience and time they were provided and that will, of course, lead to better word-of-mouth business development opportunities.
Just as well, your bank needs to be proactive in monitoring new compliance regulations and industry trends. For example, the Dodd-Frank legislation will require the maintenance of high quality loan documents and sound data integrity. Your compliance staff can help to ensure acceptable data standards pursuant to such legislation are being practiced throughout the bank.
Revisit your customer communications. There may be opportunities to more efficiently deliver required compliance notices electronically, rather than through traditional mail, which will reduce costs. Also, social media is becoming an increasing communications channel between the bank and its customers. Compliance needs to monitor such communications to proactively identify and investigate potential compliance problems that may be being discussed there. And, it is crucial for the staff member in charge of managing your social media outlets to be trained on what is appropriate to post, and how to best respond to both pleased and disgruntled customers.
Finally, you absolutely, positively, must engage with your regulators. Before adding new products or changing features of existing ones, reach out to the regulators for advice and direction. The regulators are often perceived as the bad guys, but they will truly provide knowledgeable feedback and regulatory interpretation, which will help you to avoid potential compliance pitfalls. Really, the regulators should – and could – be your best friends.
Caution – Compliance should not run the bank
All this being said, the Compliance function must be closely managed and led by Senior Management to ensure the organization is achieving a balance between “risk management,” efficient processes, reasonable policies, and superior customer service. Due to the “knee-jerk reaction,” or due an improper attitude about the current regulatory environment, many organizations have allowed the Compliance function to truly drive their bank, rather than advise and guide the bank on needed changes. This could be the greatest potential drag on profitability that we can conceive. Again, your bank needs to be 100% compliant, but – if unchecked – your Compliance function can be expecting much more than 100% compliance, which most banks cannot afford. It is simple- when Senior Management is not engaged, leading, and questioning the added efforts or costs of compliance, the balance is lost. Engage personally, lead others, change mindsets, and make productive change happen in a balanced fashion in your bank.
All this being said, the Compliance function must be closely managed and led by Senior Management to ensure the organization is achieving a balance between “risk management,” efficient processes, reasonable policies, and superior customer service. Due to the “knee-jerk reaction,” or due an improper attitude about the current regulatory environment, many organizations have allowed the Compliance function to truly drive their bank, rather than advise and guide the bank on needed changes. This could be the greatest potential drag on profitability that we can conceive. Again, your bank needs to be 100% compliant, but – if unchecked – your Compliance function can be expecting much more than 100% compliance, which most banks cannot afford. It is simple- when Senior Management is not engaged, leading, and questioning the added efforts or costs of compliance, the balance is lost. Engage personally, lead others, change mindsets, and make productive change happen in a balanced fashion in your bank.
