Often seen as an inconvenience, a burden, or a blocker programmed to say ‘no’ to every new idea, regulatory compliance has been given a bad name. Here, Mitch Trehan, UK Head of Compliance and MLRO at Banking Circle reminds businesses that compliance exists to save lives and livelihoods, not to put a stop to innovation.
Compliance. The final tick box before a new product, service, or announcement goes live. Right? For a long time, this has been the case, but this approach of bringing compliance on board at the end of the process has stunted innovation and, in my view, has unfairly earned those with compliance in their job title a bad reputation for saying ‘no’ to exciting new projects. As a result, many firms see compliance as a blocker rather than an integral part of the business strategy.
This attitude is one of the most significant compliance challenges today. Presented with a fully developed solution, the team tasked with protecting the business, its clients, and its customers may discover non-compliant elements that must be resolved before the project can launch. Product development must then be put into reverse to fix the issues.
An inexperienced baker would be foolish to glance briefly at a list of ingredients and attempt to bake a cake without following a recipe step-by-step. In the same way, those who are not experts in compliance should rely on the experienced compliance officer during product development to ensure the end product is compliant and ready for launch – like the best Mary Berry Victoria sponge.
The forgotten truth is that a compliance officer’s job is not to say ‘no’ – unless the request is illegal, of course. Their job is to advise on the policy and stance of a business and to explain the risks and the options. If the business wants to do something new, a compliance officer should not stand in the way without just cause.
However, compliance needs a seat at the table from the outset. Then it will be positioned to support product development and ensure solutions and positioning are correct and compliant from the start, avoiding wasting time and resources redesigning ‘finished’ solutions. Bringing in compliance at the end, as a box-ticking exercise, is a strategy known to fail. As such, organisations need to reframe how all employees see compliance, and how it fits into the business, from the top down.
Ongoing regulatory changes bring significant costs and burdens to any business. Each change requires additional training and checks on current products, services, and processes. Updates and tweaks may be required, costing more time and money, and potentially incurring downtime while changes are implemented.
A 2023 report from LexisNexis Risk Solutions entitled ‘True Cost of Compliance’ recently revealed the staggering cost of financial crime compliance for UK financial services – approximately GBP 34.2 billion in 2022, or an average of GBP 194.6 million per business per year. Survey respondents cited increasing regulation and regulatory expectations as the greatest external drivers of cost.
The speed of regulatory evolution is not only financially costly, but it also creates a skills challenge. As requirements shift, there are fewer and fewer individuals who can be called upon as experts in the field, to advise and support in addressing the changes.
It is often forgotten that financial regulation is in place to protect consumers and businesses and to help stop terrorism. It is not there to be an inconvenience; it is there for the greater good. Therefore, businesses employing robust compliance measures and processes are doing the right thing for society at large – compliance is a moral and sociological obligation.
It is also fundamental to a business’ reputation. Who can forget the enormous fine paid by HSBC back in 2012 when the bank’s inadequate compliance and Anti-Money Laundering processes failed to stop criminals and terrorists from laundering money through it?
Not only is reputation vital for customer confidence, but it also helps attract and retain the best workforce. Younger generations joining the industry are more focused on doing the right thing, so a business committed to robust compliance will fit well with its values and will be an attractive potential employer. Customers too want to work with a business they know is doing the right thing.
I believe that as soon as a business truly makes compliance integral to operations, more of the workforce wants to be involved. The business then quickly gains economies of scale, where its people have the right culture and conduct. With a shared focus on compliance across all aspects of the business, expertise is shared, people learn more quickly and become more efficient, and compliance naturally becomes less of a burden.
The encouraging news is that businesses do seem to be changing their ways and learning from their mistakes. The LexisNexis Risk Solutions report states that businesses are investing in making improvements to their compliance processes and anticipate seeing tangible business benefits by 2025, including higher customer acquisition rates and better financial crime detection rates.
Many businesses are also putting compliance officers on the management team. The fact is, in the UK the minimum number of people within a business who must always be authorised by the regulator are the head of the business or branch manager and the Money Laundering Reporting Officer. That short list clearly demonstrates the importance of the role.
No business wants to be caught out and fined by the regulator, so they must remember that while they have historically seen compliance as a box-ticking exercise at the end of product development, that is certainly not how the regulator sees it. Compliance is a vital and valuable requirement and must be handled as such.
This editorial was initially published in the Financial Crime and Fraud Report 2023 which dives into the captivating world of fraud management, digital onboarding, and financial crime in the financial services industry. You can download your free copy here.
Mitch Trehan is the UK Head of Compliance and MLRO at Banking Circle and a regular public speaker. Co-chair of the ‘Interbank Payment Policy Committee’ for UK Finance and on the Payments Association Advisory Board. Named ‘One to Watch’ by Money 20/20.
Banking Circle is a fully licenced next-generation Payments Bank, designed to meet the global banking and payments needs of payments businesses, banks, and online marketplaces. Banking Circle solutions power the payments propositions of 300 financial institutions across the globe, including 16 banks.
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