Compliance, regulation, and adapting at a fast pace. Dr. Tarek Nechma from ComplyCube talks to us about all that and more.
3.5 million fraudulent accounts at Wells Fargo. A USD 2.3 billion ‘accounting error’ in the balance sheet of the now-defunct Wirecard. 11 million Volkswagen vehicles with rigged emissions levels. USD 877 million GDPR fine for Amazon. And the list goes on.
These are some of the major corporate scandals that made global headlines. A quick Google search will reveal that this is only the tip of the iceberg, with most cases never reported publicly.
Though these scandals vary in nature and business sector, they are attributed to compliance and misconduct failures. This article explores why the corporate world is rife with such failures and attempts to draw lessons.
Lawmakers enact rules and laws to regulate how organisations operate, protect consumers, and promote fair competition. Consequently, organisations must invest time, capital, and human resources to understand and implement the new rules, thus achieving regulatory compliance.
Firms spend millions of dollars on compliance programs, training, technology, and other efforts to ensure adherence to laws, regulations, and company policies.
While the cost of financial crime compliance alone reached USD 213.9 billion in 2021, compliance failures and fraud cases continue to be regularly reported. That is why executives often intimate frustrations about the growing compliance costs for which they do not see ‘tangible’ benefits. And yet they continue to invest, fearing exposing their organisations to greater liability should they fail to spend enough.
To make matters worse, a survey by EY of 3000 executives showed that malfeasance remains deeply entrenched, with 42% of respondents indicating they could justify unethical behaviour to meet targets, putting themselves and their companies at the risk of legal proceedings, hefty fines, tarnished reputation, and eroding customer trust in the process.
Much of today’s regulatory landscape evolved due to significant events. For instance, Enron’s collapse inspired the Sarbanes-Oxley Act to improve corporate governance and transparency. The 2008 financial crisis led to multiple regulations such as MiFID II and Dodd-Frank to protect the financial markets, investors, and consumers. The emergence of cryptocurrencies pushed several countries to overhaul AML/CTF laws, whereas geopolitical flashpoints accelerated the pace of Sanctions.
Most firms address emerging regulatory requirements through ‘minimal viable compliance’ (MVC) by allocating a specialised team with the sole mission of ‘do whatever it takes to keep regulators at bay’. Every time a new rule is enacted, the MVC process kicks in, ultimately leading to a siloed compliance environment where a team is responsible for FATCA (Foreign Account Tax Compliance Act), another for Dodd-Frank, a department for Sanctions, and so forth.
This fractured methodology also treats compliance as a box-ticking exercise in which employees sit through mindless training, complete overarching attestations, conduct touch-and-go audits – and crucially fail to implement adequate KPIs (Key Performance Indicators) and KRIs (Key Risk Indicators) that measure the effectiveness of the compliance regime.
The MVC approach may work in the short term but is not sustainable, especially as the regulatory landscape continues to widen. Besides, as a company grows, it will yield a spaghetti of incompatible and inefficient processes that compete over finite resources and impede business productivity, further increasing the compliance burden.
New regulations not only add a significant cost burden but also create new data requirements for granular data sets and reference data. Hence, compliance teams must quickly interpret changes and ensure that corresponding data requirements are acted upon. They must also ensure good data quality, consistency, and completeness to maintain the integrity of the compliance framework. Processing these data sets manually or in isolation rapidly becomes impractical even for small firms while the non-compliance risks exponentially increase.
Therefore, companies increasingly turn to technology solutions to manage data more efficiently and implement best practices such as metadata dictionaries, data maps, and audit trails. Firms can also leverage a standardised and scalable data service to swiftly extract attributes needed for each regulation.
Compliance must not be an excuse for poor processes that are solely designed to meet the regulatory rules, do not improve the business, and often increase user friction. In our digital age, institutions must continuously look for ways to derive more value and increase competitiveness at every touchpoint to win and retain customers.
With the compliance function often the initial customer gateway, it needs to evolve into a strategic catalyst that taps into the power of data and technology to streamline convoluted processes and improve customer satisfaction.
For example, institutions are increasingly revamping their Know Your Customer (KYC) operations, shaping onboarding processes around compliance. However, KYC onboarding should be regarded as the first step in making an excellent first impression, setting up a long-lasting business relationship, and an opportunity to understand the client’s needs better.
Therefore, firms must stop implementing stop-gap compliance measures. Instead, they should take advantage of technology and business transformation budgets to re-engineer processes and clean up data quality issues. This may take more time and money in the short term, but companies that make this strategic investment will be rewarded with a significant competitive edge in the medium and long runs.
At ComplyCube, we have made it easy for businesses to re-engineer onboarding processes, achieve Single Customer View (SCV), and reduce Total Cost of Ownership (TCO) while achieving global AML/CTF compliance.
Dr. Tarek Nechma is the founder and CEO of ComplyCube, an award-winning AML/KYC compliance platform. Prior to ComplyCube, Dr. Nechma held senior roles in financial services, most recently as the Head of Enterprise Data Tools and Insights at Barclays bank, where he oversaw the buildout of innovative platforms to uncover insights and unleash business value.
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