Managing FinTech Compliance – What we can learn from George Clooney and A Perfect Storm

Sadly for most this blog is not a shock revelation about George Clooney – the lead in the blockbuster movie The Perfect Storm (released in the year 2000) - giving up his acting career to take up a role as a Compliance Manager – rather it is a look at the challenges faced by the growing number of FinTechs in the UK who are desperately struggling to recruit and retain effective compliance managers in order to meet the regulatory requirements of the FCA.

The Perfect Storm for George was the arrival of three massive storm systems arriving at the same spot simultaneously creating massive winds and waves that, when combined with some over optimistic decision making, led to a tragedy at sea.

The perfect storm for FinTechs as they seek to recruit and retain effective compliance managers is the result of three equally massive challenges that can cause real threats to a FinTech’s sustainability. Let us explain the three challenges:

Firstly FinTechs are looking for compliance managers who have broad compliance experience and can advise on the compliance requirements of all areas of the FinTech business (sales & marketing, risk, operations, IT, etc). This breadth of experience is usually only found in very senior compliance managers who have developed their experience over 15+ years. As a result they are not cheap and are also difficult to find. Many FinTechs find the people they want to pay a £30-£40K salary, are in the market for more like £120K+.

Secondly FinTechs are looking for employees who really “get” their business and are able to fit in with the “go getting”, entrepreneurial cultures they prize – including recreation, table football and a fluid, creative working atmosphere focusing on growth and opportunity.  But while there are many dynamic compliance managers out there, there simply aren’t enough of them able or willing to make the transition into a FinTech culture which compliance as a discipline does not functionally groom people for.

Thirdly, where FinTechs find people who they see as good compliance candidates because of, for example, their Tech knowledge and their cultural fit, they face a challenge in growing their compliance knowledge and capabilities beyond sending people out to courses which are not designed for their needs in fast moving businesses.

This can leave FinTechs to either pursue a “long shot” policy of trying to track down a suitable candidate in a very limited pool or hiring someone with limited or no experience in the hope they can learn the role on the hoof without any extra development or support. Either path can lead to gaps in the FinTech’s ability to meet regulatory requirements and we observe often leads to expensive churning of people as firms repeatedly find they don’t have the people they need and go looking for replacements.

Enough of the doom and gloom. For those that are interested, we at TCF believe we have developed a set of alternative options that will enable ambitious FinTechs to plug their compliance manager gaps. Using our experienced network and leveraging our wide experience, we have developed a range of options for our clients. These include providing a comprehensive development programme for compliance managers in FinTechs to boost experience and performance, either as a standalone or in combination with a tailored managed support service backed up by the choice of experienced full or part-time interim compliance managers.

If you would like details of any of these options then please do get in touch.

www.thecompliancefoundation.com

info@thecompliancefoundation.com

Compliance Breaches will continue until the UK’s Financial Institutions finally put delivering positive customer outcomes as their primary objective

Last month’s FOREX ruling in the UK and US against a cadre of the best known names in banking saw the issuance of some of the largest fines to date yet for regulatory breaches in the Financial Services sector.  

Whilst the wanton act of corruption is, in itself, deeply disturbing, what makes it particularly shocking is that it was happening at a time when many of the senior executives in the banking sector were opining that the industry, whilst not yet being perfect, had significantly cleaned up its act and was now once again trustworthy.   It hadn’t and it wasn’t. 

So were the apologist executives actively lying about the state of their industry or were they just as in the dark as the rest of us as to the shady goings on within their institutions.   Outside of a court of law I guess we will never know the answer, however, I would not be surprised to find that a number of them were even more surprised and disappointed by the actions of the FOREX traders than the general public.   Why?   Because I think a number of them genuinely believed they had done all that was necessary to protect their Bank from serious compliance breaches.   However, based on the evidence and supporting anecdotes all they had done was to ensure that the compliance boxes were ticked.  What they had struggled to deal with, in any meaningful way, was the same pernicious culture of “bankers self interests” that had underpinned the 2008 crash.

Strangely, contrary to public opinion most Banks believe themselves to be over run by compliance and risk staff – the people whose job it is to spot and stop errant behaviours.  Bankers are forever being asked to complete mandatory compliance training, complete risk assessments and participate in internal audit activities. So how on earth, at some of the most “protected” banks, (i.e. those with the largest risk and compliance departments) can such a massive set of non-compliant behaviours not get picked up and stopped at a much earlier stage?   How is it possible, given the compliant exhortations and sentiments of the Chief Executives, that FOREX traders still think it is OK to form a cartel and fix the exchange rates to the detriment of their customers?   

The answer is relatively simple to articulate and elusively challenging to enact.   Culture change.

The FCA are now very fond of reminding their regulated firms and those applying for regulation, that complying with regulation, both the spirit and the letter of it, maintaining a “culture of compliance” and delivering fair customer outcomes (and nothing less) is what they are expecting.

However, from my most recent experiences of working within major financial institutions it still appears to me as though the Banks are missing the point on what the FCA is actually looking for.

As part of a recent assignment I had to complete a series of mandatory training modules on compliance and risk in order to be able to work within a particular bank.  I believe that the total time required for me to complete the training was approximately 6 hours.  The modules covered the banks approach to risk, compliance, fraud, bribery anti-money laundering etc, etc and were very comprehensive.  Surely the bank could do no more in preparing me to work in a compliant way?  Well yes and no. 

What struck me as odd as I worked my way through the well prepared materials was the focus of the training.   Almost all the modules concentrated on informing me of the actions that I needed to take to protect the bank from financial and reputational risk – not a bad thing in itself – but what almost all the training modules failed to do was emphasise the need to do the right thing for the customer and to drive positive customer outcomes.   In essence, there was still a faint whiff of the old masters of the universe thinking in the materials. Banking is for bankers.

In my opinion, if the banking industry is truly going to adopt a culture of compliance then they will have to navigate away from the bank and bankers being the primus inter pares to the customer and the customer’s outcomes taking that position.  Until that place is reached there will continue to be a regular (all be it somewhat reduced) flow of breaches and scandals that will have the Chief Executives of banks wringing their hands and scratching their heads.

So how do they get there?  Unsurprisingly there are a myriad of actions required over an extended period of time.  However, here are a few that appear obvious to me.

1.   Ensure the voice of the customer is prominent in all compliance training

2.     Review technology, products, processes and policies from an end to end viewpoint to ensure that they are actually delivering positive customer outcomes

3.     Invest in a targeted culture change programme to increase the focus on the customer

4.     Spend more time listening to the voice of the customer at senior manager level

      There are a course a million others but that’s for another blog.  Do get in touch if there’s anything you’d like to agree or disagree with in the blog or whether you recognise the issues in your Bank and would value some advice and support.