In this five-part podcast series, sponsored by K2 Intelligence FIN, we have considered defining and building effective compliance programs. I have been joined in this series by Michelle Goodsir, a Managing Director at K2 Intelligence, and Gail Fuller, Financial Integrity Network (FIN) Vice President. Michelle has 25 years of financial crime compliance experience which includes fraud risk management, anti-bribery and corruption, corporate security and investigations, sanctions, and Anti-Money Laundering (AML) program experience working within the financial services industry and the US government. Gail focuses on developing, refining, and implementing FIN’s quantitative and qualitative risk rating tools. She leads engagements focused on helping FIN’s jurisdictional and private sector clients understand their exposure to financial crime risk and develop and implement strategies to mitigate their risks.
Over this series we have considered key challenges in compliance, why compliance needs a seat at the table, how to do compliance on a budget; training and culture and what is on the horizon. In our conclusion, Part 5, I visit with Gail Fuller as we look 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.
US Banking regulators have really tried to make it clear that there is a “safe space to experiment with new compliance technologies.” Fuller related, “not everyone really feels confident taking them at their word, but they are making it clear that they have an expectation that people are going to be trying new things.” Another area for innovation has been in considering ways to share the burden of compliance costs through managed services and shared compliance resources across institutions. The major theme is that “regulators in the US expect banks to get creative and to find ways to ensure they are still doing what they need to do in the current crisis. Another area where compliance is expected to be proactive is related to identifying and mitigating emerging risks and illicit finance topologies.” This is because with all the federal bailout monies, there will a lot of “bad actors trying to take advantage of the current situation, the crisis that’s going on right now”. Compliance functions need to be able to adjust to those changing threats and risks.
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 and think about the 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. Regarding banks and other financial institutions, they have specific regulatory commitments or they may even have monitors in place. 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.”
K2 Intelligence financial crimes risk & compliance page: https://www.k2intelligence.com/en/services/our-practices/financial-crimes-risk-and-compliance
K2 Intelligence Anti-corruption page: https://www.k2intelligence.com/en/services/our-practices/financial-crimes-risk-and-compliance/anti-corruption
K2 Intelligence DOLFIN: https://www.finintegrity.com/dolfin.html