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Mitigating Compliance in Financial Institutions

By David Monegro, SVP and Chief Compliance and BSA Officer, City National Bank of New Jersey

David Monegro, SVP and Chief Compliance and BSA Officer, City National Bank of New Jersey

Emerging Challenges in Compliance

Over the past several years, the regulatory landscape has become more dynamic. This is one of the most significant challenges that banks around the globe are facing and there are no signs that it is going to get any easier. Every financial institution is unique with its own challenges and objectives. However, one thing seems to hold true for all financial institutions and that is they cannot underestimate the speed of change, which seemed to be innovative today; is quickly an old news tomorrow.

"Compliance officers need to be relentless in exploring methods to bolster their institutions’ compliance controls which will lead to increased transparency and good customer experiences."

In my opinion, some of the emerging challenges in compliance are managing the dynamic regulatory landscape while ensuring that the business continues to innovate and meet new customer demands. Over the last few years, there have been a plethora of new regulations that have impacted the manner in which financial institutions conduct their business. In addition, the digital revolution along with the growing number of FinTech companies is also challenging the traditional bank business model and forcing many banks to re-think their legacy business strategies and embrace new technology to deliver faster payments and state-of-the-art financial products to their customers while adhering to regulatory compliance standards and expectations.

To ensure that financial institutions remain compliant with the spirit and letter of the many laws and regulations, compliance officers must become involved in product governance at the initial phase of the product life cycle. The spirit of the many consumer protection laws and regulations dictates that financial institutions offer financial products and services in a fair, safe, and transparent manner to its customers. A fundamental business goal is to provide consistent good customer experience. A good customer experience consists of many factors, however, I argue that one of the main factors is having a product or service that is easy for the customer to understand, use, and is fairly priced. By being engaged at the beginning of the product life cycle, the compliance officer can help ensure that the applicable rules, to the new product are identified and embedded within the product design. During the product life cycle, the compliance officer’s role is to ensure that the interests and objectives of the customers are properly taken into account. Taking extra time to ensure that all applicable rules or regulations are rooted within the product life cycle will allow for a positive customer outcome, increase the probability of a successful product, and meet regulatory demands.

Compliance a Major Issue

The business of banking has changed and continues to remain competitive. The first step to make any change is to first acknowledge that something has to be done differently. The modern day financial services business is all about managing the risk. Traditionally, when we speak of risk in the financial services industry, we think of credit risk, however, the new business of financial services is managing all risks, including compliance risk. To properly manage risk, the notion of risk management must be ingrained within a company’s culture. Every unit in a financial institution must understand the rules applicable to their functions and know that there is minimal or zero tolerance for stepping out of bounds. The compliance officer needs to be the person leading the effort in promoting a spirit of collaboration within the company to ensure that compliance.

With change occurring at lighting speed in both the business and regulatory environments, collaborating is critical to the success of a financial institution. Although the number of FinTech companies continues to grow, many of these companies provide banks with opportunities; not only to innovate financial service offerings, but also to strengthen compliance controls. Banks can build explore joint ventures with FinTech firms or acquire a firm to expand enhance its capabilities and value proposition. Collaborating with customers, vendors, and other financial services institutions allows for an institution to enhance operating efficiencies, strengthen compliance controls, and remain relevant to their customers.

Compliance is Successful

The role of the compliance officer has changed in the last years and continues to change. Today, the compliance officer’s role is much more vague and is driven by the changing regulatory landscape as well as the change in the business environment. The increasing regulatory expectations coupled with customer demands for more efficient financial products, faster payments, and new financial products has created a synergy between compliance and technology. Compliance and technology collaborate to combat developing threats or risks to the business that can lead to detrimental customer experiences and increased reputational risk, such as cyber- attacks and data breaches. Compliance officers are not expected to be experts in technology; however, compliance officers must collaborate with the technology team to make sure that cybersecurity is a top priority in the organization and appropriate steps are taken to identify and manage any cyber threats.

Advice for Fellow Compliance Officers

My advice for fellow compliance officers is to think of compliance as a business. We are in the business of risk management, particularly managing compliance risk. As the leader in the compliance risk management business, compliance officers must remember the basics and embrace change.

Despite all of the new rules and regulatory demands, the spirit of the laws and regulations remains the same: to protect customers from unfair or abusive practices and to protect the financial institutions’ stakeholders by operating the business in a safe and sound manner. Adhering to this principle allows for compliance officers to ensure that the institution complies with the spirit of laws and regulations as well as to work with colleagues to develop processes that will ensure compliance. Compliance officers must also maintain a positive mindset and embrace the change that surrounds us. The reality today is that the financial services industry is changing fast through new technology and more stringent rules and regulations. Acknowledging this reality will allow compliance officers to develop dynamic compliance programs able to adapt to new business and regulatory expectations. Similar to a business leader, the compliance officer must be visionary, innovative, and strategic. New technologies are present business opportunities and those same business opportunities can be used to strengthen your compliance programs. There is not a “one size fits all” compliance program; compliance officers need to be relentless in exploring methods to bolster their institutions’ compliance controls which will lead to increased transparency and good customer experiences.

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