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Thomson Reuters 'How-To' Series
Creating a culture of compliance
in financial services

Creating a Culture of Compliance in Financial Services

The policy shifts signaled by a 2015 Department of Justice memo, titled “Individual Accountability for Corporate Wrongdoing,” have elevated compliance concerns for financial institutions. Authored by Deputy Attorney General Sally Yates, the memo says that corporate employees can now face criminal or civil consequences for their wrongdoings in corporate cases. The DOJ’s new policy is a response to previous criticisms against regulatory settlement conventions, which allowed corporations to resolve their legal dilemmas by paying large fines, while unlawful employees remained legally unscathed. In an effort to curb corporate misconduct, and reform a pay-to-play regulatory outfit, the Yates memo has reduced monetary fines for companies and raised every employee’s personal stake in compliance.

The Yates memo is the latest impetus for financial institutions to reform and reorganize their compliance cultures. Already straining to meet the demands of post-crisis legislation like Dodd-Frank and the Basel III Accord, the threat of personal liability for management and personnel compels financial C-Suites to expand the controls of their compliance managers. To promote a firm-wide culture of compliance, the leadership of financial institutions must create chief compliance officer positions and empower them with significant decision-making and supervisory authority. The C-Suite must set a positive example and dictate the cultural tone for the organization, so compliance becomes a value that resonates from the boardroom to the mailroom.

A compliance department with clearly defined leadership, along with robust decision-making and oversight powers, promotes a culture where employees feel safe reporting misconduct. In the wake of unprecedented regulatory reform and compliance overhauls, financial firm leadership must adjust its perspective and view individual employees as their most valuable resources in the detection of criminal behavior. The proper delegation of power and oversight to a chief compliance officer helps financial firms incubate cultures that reward employees for “doing the right thing” and reporting wrongdoing to the correct channels.

Beyond leadership reorganization and expanding the scope of chief compliance officer controls, financial firms must also embrace regulatory technology, or regtech, to promote cultural initiatives. With all of the challenges facing compliance personnel in financial services, automated regtech solutions are invaluable assets, enabling risk managers to process firm and customer data more efficiently and accurately. From flagging high-risk clients, to identifying suspicious transactions and abnormal employee behavior, regtech is the invisible hand that keeps organizations honest.

In an era of unprecedented regulatory reform and transnational organized crime financing, compliance and profit have become co-dependent mechanisms for financial services firms. Non-compliant firms now face legal consequences, where their entire executive core could be jailed if regulators prove criminal negligence or liability. Financial services leaders must renovate the corporate cultures, underlying their compliance initiatives. This transformation requires firms to expand the decision-making powers of their compliance executives and bank on regtech innovation to promote transparency and reinforce compliant cultural values.

Expanding the Chief Compliance Officer’s Role

For financial institutions, the creation of a healthy culture hinges on the scope of the CCO’s oversight of and engagement with the firm’s day-to-day operations, including employee training. C-Suites must offer the CCO a seat at the board where firm leadership makes all of the substantive decisions. This inclusion allows compliance managers to actively engage with every firm decision of significance, evaluating corporate moves through the optic of risk management, as opposed to that of profit multiplication alone. Paradoxically, the regulatory trend line indicates that, in the long run, compliance will become more of a revenue driver and less of a cost center for financial firms. Heightened CCO engagement with boardroom decision-making and supervision promotes brand protection, reduces reputational risks and enables business to function uninterrupted.

The delegation of greater power to the CCO sends a clear message to firm personnel that the CCO has a leadership role and that his or her initiatives hold weight. Also, by prioritizing and spotlighting the CCO’s enterprise value, financial firms will receive better audit reviews from regulators and may even get the benefit of the doubt in investigations. When institutions confer visibility, prestige and broad authority to their CCOs, regulators are more likely to conclude that the firm is operating transparently and making an honest effort to comply. Additionally, the growing importance of and demand for capable CCOs means that institutions must strategically align compensation with the enhanced value proposition posed by compliance.

Beyond the added prestige and expanded supervisory authority delegated to the CCO, a corporate culture cannot flourish unless the CCO is actively engaged with the training and education of firm personnel. Traditionally, compliance in financial services has been imposed upon employees in a way that feels tedious and dry. But, if firms were to transform legacy views of compliance and offer training as an engaging and educational content delivery experience, personnel would be more receptive. If compliance programs can find a way to incorporate game and prize elements into training simulations and exams, they are more likely to keep employees awake and engaged. In this regard, organizations must seek out CCOs that embrace interactive education and who are capable of imparting their values from the standpoint of teachers, instead of supervisors.

Invest in Regtech

As the age of big data intersects the era of financial regulatory reform, it has become impossible for compliance leaders to fulfill their duties without suitable monitoring and recordkeeping technology. The C-Suite can expand the CCO’s authority and decision-making latitude all it wants, but if the proper technology is not deployed, the CCO’s power is meaningless. In an ideal world, it would be nice to think that financials services personnel would obey every line and rule of the employee handbook. But, the reality is technology is required to hold people accountable for their actions.

Regtech is the hidden hand that enables compliance officers to reconcile all of the blind spots in vast, growing and complex organizational silos. From screening client prospects, evaluating vendor risks, scoring risk, flagging suspicious activity, monitoring communications, incident reporting and maintaining organized records, regtech helps keep employees in line. However, given the sweeping merger-and-acquisition frenzy that transformed the financial industry post-crisis, CCOs must give special attention to data standardization and integrity. Specifically, firms that have absorbed many smaller entities will inevitably encounter divergent recordkeeping and database conventions in their acquisition networks.

Before regtech solutions can be properly deployed throughout the firm, CCOs must ensure that subsidiary database architecture has been cleaned and made consistent with the parent company’s standard. Through this normalization of subsidiary and acquisition data, CCOs can mitigate audit anomalies posed by duplicate entries, incomplete entries, incorrect entries and occasionally, falsified entries. After a reasonable effort to standardize organizational databases has been undertaken, CCOs can then implement regtech solutions with greater confidence. Through data integrity, CCOs achieve enhanced transparency, which forms the nucleus of a compliant financial services culture.

Clarity Begets Compliance

The consistent monitoring of financial services clients, transactions, vendors and personnel is crucial to ensuring regulatory compliance. Still, many of these supervisory risks, challenges and costs could be reduced if firms were to conduct better diligence when onboarding their various counterparties. Thomson Reuters’ CLEAR is a best-in-class investigative software solution that empowers financial firms with the same type of database capabilities available to top law enforcement agencies. Additionally, CLEAR features adaptive functionalities, which alerts institutions the exact moment that the legal or compliance standing of counterparties becomes adverse.

Since the Yates memo has issued the threat of prosecution to financial services personnel and execs, CCOs included, compliance leaders have a personal stake in the selection and application of regtech solutions. Having the most accurate and holistic view of counterparty risk exposures, before they corrupt human resources or depository accounts, is an essential asset for every CCO. Beyond insulating the firm from liability and reinforcing its cultural values, modern investigative software can help shield CCOs from the increasingly draconian glare of regulatory scrutiny. Ultimately, the battle for culture begins with clarity. Thomson Reuters’ CLEAR is a law-enforcement-grade digital asset, that illuminates every counterparty shadow.

How Thomson Reuters Can Help

CLEAR online investigations software provides a solution to your compliance and regulatory needs. By providing consistent, comprehensive and defensible investigative results, CLEAR can uncover weak links in a vendor’s business history in the form of politically exposed persons, criminals, bankruptcy, high-risk business officials and other dubious entities. With CLEAR you can:

  • Access key proprietary and public records in one intuitive environment
  • Enable batch alerting to run one search for a large number of people and businesses
  • Receive real-time records such as arrests, watch lists and social media
  • Instantaneously analyze search results to shorten investigation time and uncover hidden unknowns
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