Don’t be fooled by student debt article

This is not about financial regulatory compliance from the perspectives of regulators or financial institutions. This is about compliance from a personal finance perspective. The short and skinny of it all is, you should not borrow money for education if at all possible.  The reason is because it is one of the worst to get toward financial independence.

I will explain why by first explaining how income taxes and their associated fines work when you don’t pay your income taxes. If you earned $100,000 in 2015, your effective earn income tax rate is 28%, or $28,000, unmarried non-head of household taxpayer. If you didn’t pay any of that, you would pay a fine of up to 25%. This in on top of the unpaid taxes you must pay. Basically, the IRS is punishing you for borrowing money you owe them. That makes sense. So, 125% of $28,000 is $35,000, or an effective tax rate becomes 35%. This is only applied to the years you did not pay your income taxes, of course.

Let’s see what that looks like when it is converted to student loans. If you borrowed $100,000 for your higher education, and if your interest rate is 5%, and you are in repayment, then this year you would pay $12,727.92, of which about 95% of it in your first year of repayment will be interest, or $12,091.53. Essentially, you are paying this interest to the government, which, if you think about, is a tax because this is not the amount you borrowed; it is on top of it. And, also, you must pay all of the borrowed money back. It is kind of like having a very low interest rate for this portion of borrowed “income.”

Since you are in repayment for our example. You would get a deducation of up to $2,500 from your pre-tax income, the deduction cannot exceed the amount of interest paid. So, now you will pay 27.3% or $27,300 on your earned income, a savings of $700. Plus you will have been paying the government an additional $12,091.53, so, you will have paid the government a total of $39,391.53. And this will continue for ten years, albeit the “tax” portion of it will decrease. Another way to look at it, regardless of whether you pay all of the interest, you will still have to pay more interest for at least ten years, unlike not paying taxes, which you will only have to pay interest as long as you don’t pay.

In order to pay an effective tax rate of 39.3% on your earned income, you would have to make $14.3 Million. Another way to think about it this: in order for student loans to really make sense is if you either make enough money to live on comfortably even after you pay your student loans and you are guaranteed to have your job(s) for the duration of the repayment period, or make a break even amount the first year and then an increase in your income to the amount of the interest rate each year (which becomes easier to do each successive year because the even monthly payments effectively reduce the interest payments over time).

That magical break even income for the example’s first year is… about $66,700. How do I figure? Well, if living comfortable on average costs about $40,000 per year, and your effective tax rate will upwards of nearly 40%, then you need to make $40,000 after tax. This $66,700 only accounts for Federal Income Tax. It does not account for Social Security, Medicare, local taxes. Most of those other taxes amounts to about 10% of your income, depending on where you are. That means, you’d need about $80,ooo.

Who gets paid $80,000 on their first job after undergrad? Engineers and investment bankers. Is it no wonder that they have the bandwidth to accomplish a lot of other things in their early lives?

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. 

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. 

Importance of formal training in Compliance

There are many jobs that one can learn from experience alone. Compliance Officer is not one of them.

ACFELOGOLike Law or Accounting, becoming an effective compliance officer requires three sets of knowledge: foundational knowledge gained in formal education, specialist knowledge gained in training, and management and leadership knowledge through experience. Foundational knowledge is important because that’s the common knowledge with which the world operates. And management and leadership knowledge can only be developed through real world experience, no amount of conceptual knowledge alone will make one a good manager or leader. The middle piece, the specialist knowledge, requires training because without it the Compliance Officer simply becomes a Compliance Manager or Analyst.

The reason Compliance is like Law or Accounting is that the logic with which Compliance works differs. The logic behind complying with Financial Regulation comes from understanding a business at the operational level as well as the contribution the firm makes to the financial markets overseen by the regulator. Understanding the operations of a business could be gained through training and experience within a business. Understanding the requirements and priorities of regulators require interfacing with the regulator. Many roles are title Compliance Officer, but the true CO roles are the ones that require both arenas.

CAMS LogoThere are several ways to gain the necessary training. Many large financial institutions have Compliance training. Usually, this is the bare minimum of Compliance training necessary. Some of them might not actually be Compliance training but simply a training about suspicious activities awareness. To be qualified as Compliance training, it should include information about regulatory functions and the responsibilities of various regulators and their interactions with Self Regulatory Organizations (SROs) and private firms. In the US, this means a need to cover some combination of the following entities:

And, at a minimum, there is a need to cover the following topics:

These are a lot of topics and no one can be an expert in all of them. But without exposure to this full spectrum of knowledge, a Compliance Officer is not equipped to dealing with the complex nature of the competing interests without an overview of these subjects. There are several ways to get formal training on these entities and matters.

The most common, direct, and practical way to get the formal training needed to be equipped to be a Compliance Officer are through associations that have developed the certifications.

There are programs at a few institutes of higher education that offer coursework specifically addressing these entities and topics:

  • University of South Florida has undergraduate, graduate and PhD programs in Criminology
  • Pace University has Certified Compliance and Regulatory Professional (CCRP)
  • Utica College has MS in Financial Crime and Compliance Management
  • Charles Sturt University has Diplomas, BA and MA degrees in Anti-Money Laundering and Counter Terrorist Financing, Intelligence Analysis, and Investigations

I have provided a concise, compelling reason why you should be staffing your firm with trained Compliance Officer or training the untrained employees who are moving into Compliance. Hopefully, this will be a good starting point for you to think about what kinds of issues your firm will have to face and the value a trained Compliance Officer will bring in handling them.

Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience. 

Week In Compliance: Retirees, be ware

Don’t trust her with your money. Kristina Svechinskaya, 26, is a Russian hacker who stole $3 Million

FINRA has proposed new rules that will allow a firm to put a temporary hold on financial transactions when abuse is suspected, and will allow the firm to contact a trusted other during this hold period. Where’s the flaw? No rule yet mandates that every financial firm and every individual advisor obtain information for a trusted contact person for every client. – Mikol S. Davis for Aging Capital 

Retirement accounts to be regulated by SEC and FINRA in 2016 – on ERISA, Andrew Welsch for On Wall Street

38% of the survey’s respondents said that compliance with TRID was their chief concern with the implementation of the new mortgage disclosure process – Ben Lane for Housing Wire

SEC observed that certain outsourced CCOs could not articulate the business or compliance risks of the registrant or, to the extent the risks were identified, whether the registrant had adopted written policies and procedures to mitigate or address those risks. In some instances, the risks described to the staff by the registrant’s principals were different than the risks described by the outsourced CCO. – on SEC’s warning about outsourced Compliance, Ethan Mark for JPSupra

Regardless of what or how many functions one chooses to outsource, it is the hiring firm that is ultimately responsible for its compliance program (not the fired firm) – Julie DiMauro from Regulatory Intelligence for Reuters 

Jobs in Compliance


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Week In Compliance: IRS is after rich people

News In Brief

non-complianceIt’s Time to Focus IRS Audits on the Superrich, Inspector General Says by Richard Rubin for Wall Street Journal

“HR departments get a bad rap. That’s because, for better or worse, they tend to excel at enforcing compliance.” by Lisa Nirell for Fast Company 

Common Interview Questions for Compliance Officers by Stella Osoba for Investopedia 

The top 6 Governance, Risk and Compliance certifications by Kim Lindros and Ed Tittel for CIO 

Advisors Take Note: Compliance Officers Are Watching by Bernice Napach for ThinkAdvisor 

3 Tips for Smarter Use of Compliance Technology by Rebekah Mintzer for Corporate Counsel

Banks need to invest more on tech for Basel III compliance: Report from India Times

“Regulatory Compliance LLC, based in Londonderry, is merging with National Compliance Services” by Eli Okun for Union Leader 

Is Compliance Keeping Up With Your Automated Advisory Tools? by Carlos Guillen for Financial Planning

“A new survey from Compliance Solutions at Charles Schwab finds the role of the compliance officer is evolving and growing in scope across corporate America.” by TMC News 


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Week In Compliance: Senator Warren is portrayed as a communist dictator

Hello on this brilliant Friday here in New York.

from Examiner

Sen. Elizabeth Warren is portrayed as a communist dictator along with CFPB director, Richard Cordray. Se. Warren lashes back via Twitter. – from Sophia Tesfaye for Salon

Speaking of CFPB, Dir. Cordray warned the Mortgage Bankers Association that there is a disturbing lack of effort to implement TRID rules by its vendors. – from Eric W. Mills of McGuireWoods LLP for Lexology

While we are on TRID, OCC warns lenders that TRID exams are coming, attached with some helpful guidance. – from Ben Lane for Housing Wire

“The overwhelming majority of the cases we bring involve CCOs who crossed a clear line by engaging in affirmative misconduct or obstructing regulators,” Andrew Ceresney, director of SEC Enforcement Division. – from Sue Reisinger for Corporate Counsel

“One of the areas we’re spending a lot of time thinking about is the sale of complex financial instruments, particularly as they’re sold to retail investors,” said Stephanie Avakian, deputy director of SEC Enforcement Division. – from Financial Planning at NASDAQ 

East West Bank’s stock took a plunge on Thursday because it failed the Federal Reserve’s AML test. It will be required to collect much more information about customers. – from James Rufus Koren for Los Angeles Times

Los Urabenos crime group of Colombia has been placed on the OFAC Sanctions list. – from Samuel Rubenfeld for Wall Street Journal

Most Compliance Analysts Expect Increased Personal Liability. – from Mani for ValueWalk

Jobs In Compliance

Opinion: Equity-Assets Ratio

It is strange that there are Conservatives who want to raise capital requirements for banks. I thought that was only something Democrats wanted. The annual stress testing of banks by the Federal Reserve is a joke, though. All that work could be avoided with some easier measures without losing any financial engenuity. Actually, there are two main ways to make stress testing pretty much obsolete. One is raising the capital requirements. But that would reduce the money supply in the market, which, if you haven’t noticed, is pretty weak right now. It is so weak that we keep missing the inflation target of 2%. Anyway, raising capital requirements would be the monetary method of solving that problem. The other method is by requiring an equity-to-assets ratio. Currently, there is no such ratio. But what if there was a requirement to have a EA ratio of 10%? This shouldn’t be that difficult. Apple, the largest company by valuation, has a 41%. JPMorgan, the largest US bank by assets, has an EA ratio of 9%. This means that JPMorgan is four times more likely to go bankrupt that Apple. Why would we let our financial institutions be so risky? The economists who proposed this several years ago proposed a 20% EA ratio. This would allow the market to monitor a bank’s health, not the just the Federal Reserve.

How do you like the new weekly round up?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Week In Compliance: Do you have a penthouse in Shenzhen?

Hello on this hazy Friday here in New York.

Compliance officers are executives and subject matter experts – Mike Scher from FCPA Blog

“General Information Services and its affiliate failed to take basic steps to provide accurate background screening reports to employers about job applicants,” Richard Cordray, Director of CFPB from Law 360

JPMorgan pays $166 Million to CFPB and $50 Million to settle claims to California for cheating thousands of credit-card customers while collecting debts – Peter Blumberg from Bloomberg New

Six Steps to Outsourcing Compliance Technology – from Compliance Digest

Shenzhen Penthouse and conflict-of-interests brings ex-CEO to court for possible seven-year sentence and Hong Kong’s anti-bribery law is questioned. – Wendy Wysong, Partner at Clifford Chance for Corporate Compliance Insight

Compliance Consultants No More!… Maybe… “What’s intriguing about this case – and what makes it all the more important – is the way that it has morphed from a “simple” alleged undisclosed conflicts of interest case into a case that calls into the question reliance on compliance consultants.” – Chris Stanley, CCO of Loring Ward Group for Think Advisor

Whistleblowers are still very likely – from Dodd-Frank Update

Standard Chartered plans to cut 15,000 jobs, increase digital banking and compliance automation – Renee Caruthers at Fierce Finance IT

Jobs In Compliance

Opinion: Is there a big opportunity in Compliance Media? 

I have been listening to a podcast called StartUp. It is produced by Gimlet Media. It is in its second season and each season they intend to follow a startup company. They introduced me to something called a lifestyle company. A lifestyle company is a company that supports the lifestyle of its owners and employees. Successful, yes. Global? No. In the show, they were following a company called DatingRing, an online dating site trying to disrupt the online dating world. While the founders were really smart and enthusiastic about it. But I had my doubts. What about all of the other dating sites? They would probably argue that since launched, there have been several successful online dating sites: OkCupid, Tinder, Coffee Meets Bagel, to name a three. The reason I was doubtful was because they weren’t offering something that was possible to scale. Match brought personal classifieds online in a palatable user interface. OKCupid brought social networking to dating. Tinder brought gaming to dating. Coffee Meets Bagel made everyone on Facebook a matchmaker. All of these things used technology to facilitate the matching and let the humans do the dating. DatingRing brought group dating on demand? The idea was that you could have a date that night if you wanted to? But it was a blind date, with no other connection except this dating service? Not that it couldn’t happen. It did happen. The problem was that it didn’t actually solve the matching problem, which is qualitative. They just thought if they had users, the matching would happen. But group dating, when scaled, is just a large party. When not scaled, it is a blind date setup by people who don’t really know you and have no connection to you, which leads to low probability of success. I mention this because I feel like I am at the point of trying to decide if my business is going to be a global media business or a lifestyle business. Right now, I can only hope to make it a lifestyle business, but I can’t really ask for money from investors for a lifestyle business. But I do have a big dream for this enterprise. I wish this would be the,, JDSupra, of the Compliance world. There are some big players in Compliance Media, not no company has as much traction as the above mentioned for law. I could have chosen other industries to do the same analogy, but you get the idea. How do I make such a narrow and new function in the financial services industry something worth monopolizing?

How do you like the new weekly round up?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE.