Bear Market Compliance

Jules, the bulldog, chase away the bears
Jules, the bulldog, chase away the bears

It’s easy to want to reduce compliance spending as the bank enters a bear market, but this is a bad idea for a whole host of reasons. The single primary reason is that revenue centers employees may take on non-compliant and high risk activities to reduce that decline in revenue to keep save their jobs. The incentive structure of your revenue center employees and the compliance culture will be tested.

Ideally, compliance spending should be relatively stable regardless of any short term market trends. In this case, short term means 18 months, because it is strategic. If your compliance department is organized to simply tackle tactical issues, you will need more compliance activity to address the possible rise of noncompliant activities.

In this sense, compliance is a lot like branding. Culture is one of the most important ingredients to Compliance Management. I know there are a lot of supposed Compliance Experts who talk about culture. If you haven’t noticed, my reader, I rarely talk about culture. It’s not that I don’t think it isn’t important, but because culture seems to be the only thing most Compliance Experts talk about; culture and tone from the top. But anyone who is actually a Compliance Expert would agree with me, culture is the one thing that doesn’t require compliance expertise.

In this entry, though, I will address culture from the perspective of a leader, not a manager. A leader who is promoting a Culture of Compliance will be cognizant of the fact that the Compliance Department’s culture and the Line of Business’s culture are often different. And the ways they are different depend on the mix of people in the Compliance Department more than the people in the Line of Business.

Compliance, by nature, requires being pedantic. Possibilities are dealt with, rather than thrown aside in favor of priorities. The few rogue employees are always looking out for possibilities, not necessarily what is right. The current bank structures are organized to reward those who bring in the most money, making the activity that brought in the money the de facto “right thing.”

We live in a society that rewards based on money, not productivity. Luckily, most of the time, productivity is the right thing. We don’t live in a society, however, that rewards those who are more productive; we live in one that rewards those who own the productivity. This means that a few superstar employees who know how to vastly upend the current level of productivity often are rewarded when the great many who help those superstars are not. (I know, I know, I’m starting to sound like a bleeding liberal; just hang in with me.) These superstars do not want to share their productivity gains with others who have helped them on their way. This last bit of change is what describes a transactional society, not a transformational one. Think about it. Transactions take just a minimum of two parties; one invariably makes a better decision than the other. Transactional society creates losers. A transformational one requires assessing one’s actual contributions and rewarding proportionally. A transformational society creates winners of varying degrees. When done right, much of the fear of getting laid off during a downturn will lessen because the issue isn’t due to proving one’s productive value but due to an issue of demand and the comparative productive value against other colleagues.

This doesn’t mean a transformational society is Utopia. But it means that people will understand the true competitive nature of the workplace: the larger competition between firms that an employee contributes to and the smaller competition between employees to be the most valuable on the team – again, the intrafirm competition doesn’t create losers but degrees of winning. But, as I said, we don’t have such a society.

That’s where managing the Culture of Compliance becomes important. Everyone should always feel like they are contributing to the welfare of the firm and compliance to policies and procedures should feel like a contribution to that firm welfare. And work should have a causality to it, meaning, one’s work causes something else to happen. If it merely has a correlation to it, as many corporate employees feel as they do, work feels bureaucratic. And it probably is. Then, of course, each employee’s duty to themselves comes down to the impression of productivity or cheating to be more productive. While only the latter is a compliance issue, they are two sides of the same coin.

So, to sum up the issue of tackling the Culture of Compliance as we head into a bear market, the Culture of Compliance starts from the duties of an employee having causal relationship to the firm’s well-being and understanding that noncompliance and brown-nosing are both results of caring more about results from a short period of time, not a long full history.

I know people might say that I am being idealistic with this, but if you are a compliance professional who doesn’t know how to lead your bank, you are ready to lead your compliance department. Compliance is a responsibility of every member of the firm and the Compliance department exists to take some of the responsibility away from other members of the firm so that they can focus on other activities. So, of course, I believe that leadership and Culture of Compliance as transformational issues, not a transactional one.

If you don’t believe me, then you are probably not a Compliance Expert. If you are a Compliance Expert, you would already know that regulators also agree with me on this point and often Delayed Prosecution Agreements are rewarded based on dealing with issues like I have mentioned.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

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