For financial services firms, compliance continues to be a delicate balancing act. The relentless flood of new legislation, coupled with demand for transformation of customer models, products, and services adds complexity that can impede growth if not addressed quickly. New thinking and a fresh approach to people, process and technology is required to ensure compliance is maintained across every customer interaction and financial transaction.
Whether preparing for MiFID II, or transitioning to the DOL Fiduciary Rule, a baseline of compliance competence for individual employees is essential to mitigate operational, reputational and financial risk. Research from Thomson Reuters shows that:
- Three quarters of firms surveyed expect the focus on managing regulatory risk to rise in the next 12 months.
- 69% expect even more regulatory information to be published in the coming year, with 26% expecting significantly more.
- Personal liability of bank executives is expected to increase.
How can financial services firms drive continuous compliance competence and mitigate risk?
Financial regulators typically have a zero-tolerance policy when it comes to protecting investor interests, with increasingly heavy fines applicable at both an institutional and individual level.
The fallout from reputational and financial losses can have a severe impact on customer acquisition and retention, and recovery for affected companies can take years. It’s no wonder firms are stepping up efforts to improve compliance awareness across all levels of the organization. Even financial institutions that today consider themselves to be highly vigilant in providing compliance training realize that they must:
- Implement agile compliance training and reinforcement programs that can respond quickly to new requirements.
- Increase the effectiveness of compliance training investments, including sustainable behavior change.
- Achieve compliance adherence at scale across all job levels, business units, and jurisdictions.
- Measure ongoing compliance competence and demonstrate an audit trail that shows consistent efforts to build a culture of compliance.
New technologies such as Qstream make it possible to reinforce the information, interactions and behaviors that improve compliance and strengthen knowledge of required procedures. Additionally, access to data-driven, real-time insights helps compliance, audit and management teams know who is ready to perform their responsibilities in line with mandated rules and processes.
The following three tips provide some practical steps to improve compliance competence within today's complex market and operational environment.
1. Cultivate compliance competencies at scale
Regulators, such as the UK’s FCA, clearly outline a training and competence regime to ensure that the financial services workforce is appropriately qualified and controls are in place to ensure competency. Compliance training for frontline staff is typically rolled out classroom-style or via an elearning platform, but often is just a "check the box" exercise.
Moreover, ongoing measurement of employees’ understanding of regulations and procedures is either nonexistent or measured by the number of breaches and errors. This situation that can carry a significant cost in terms of fines and remedial actions.
At the heart of the matter is knowledge reinforcement. Research shows that 79% of new information is forgotten within a matter of weeks. This puts the long-term effectiveness of any compliance program as a standalone exercise into question.
What if a bank officer, when monitoring customer transactions, simply forgets the anti-money laundering (AML) triggers to look for and fails to recognize a serious breach? The repercussions can be serious. At worst, a breach could lead to penalties and have severe impact on brand reputation and investor and regulator trust.
- Improve knowledge retention by as much as 170% in just a few minutes a day;
- Present real-life scenarios so that advisors and executives can better understand and practically apply compliance knowledge in context;
- Identify early warning signals if staff understanding is at a demonstrably low standard.
As an example, a major US retail bank has been able to reduce training time on AML procedures by more than 5 hours a quarter for nearly 6,000 frontline staff using Qstream.
Qstream has not only reduced the cost of training, but has delivered granular insight into where training has been effective and where gaps exist that might require further education or coaching. The bank also uses data from Qstream as part of their compliance proof package to regulators.
2. Create a continuous program of compliance reinforcement
Governance, risk and compliance teams understand that the pace of financial regulation is unlikely to slow. Regulatory change events in Europe, for example, have increased from around 9,000 in 2008 to more than 61,000 in 2016.
Many firms, by deploying the right technology supported by a programmatic, sustained approach to compliance training and reinforcement, can mitigate the high costs and risks of compliance. Results show that firms using Qstream’s knowledge reinforcement and coaching platform have seen a 35% average proficiency gain in mastering complex subject matter.
Qstream's scientifically-developed approach utilizes an adaptive spaced algorithm to reinforce critical information, and is proven to improve long-term memory and recall. In the case mentioned above, the bank achieved 93% proficiency in understanding AML rules across thousands of branch managers and tellers to help them detect, investigate, and report suspicious activity.
3. Create a culture of coaching to support the compliance continuum
Front-line managers also play a significant role in ensuring their team vigilantly follows policy and procedure in every investor interaction and financial transaction. Yet in large or distributed teams, managers may not always be able to observe staff in the field, making it difficult to truly know where to focus their coaching efforts.
In recent research from the Sales Management Association and Qstream, an overwhelming 77% of firms said they don’t provide enough coaching to their front-facing teams.
Providing managers oversight of risk and compliance policies is critical. Continuous insight into who, what and when to coach can help focus their efforts on team members who need to improve proficiency in specific subject areas. Equally, managers can give positive feedback when the right behaviors are displayed.
When it comes to compliance, management cannot over-communicate or over-measure. Tools and technology must be in place to:
- Provide data-driven insights into knowledge and skills that help management assess the effectiveness of reinforcement and coaching programs;
- Identify gaps in proficiencies early, allowing front-line managers to take remedial action at an individual or group basis;
- Support managers in delivering time-efficient, targeted coaching actions that encourage a culture of compliance at all levels;
- Present compliance officers with insights on how thoroughly and accurately compliance practices are being adopted across the enterprise.
A New Approach
Given the operational, market, and regulatory complexity of most financial services firms, cultivating compliance competence at scale calls for new thinking and new tools. Programs must be cost-efficient, sustainable and adaptable to respond to changing conditions and requirements, and to help staff adopt the behaviors that the organization wants, customers expect, and regulators demand. To learn more:
- Download eBook “Advisor Enablement Guide to the DOL Fiduciary Rule”
- Download Infographic "5 Data-Driven Steps to Successfully Onboarding Financial Advisors"
- Request a personalized demo of Qstream