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Employee Conflicts of Interest Ethics & Culture

The Compliance Program Of The Future: Part Two

A veteran compliance officer talks at length and in-depth about the radical changes coming to financial compliance  

Last week, we talked about how employees can be blinded by emotion, why apps talking to apps may be a critical driver of change, and why a compliance officer needs to protect her sources. We pick up again with our expert—the head of compliance for technology and surveillance at a well-known asset management firm—as he delves into why compliance officers are underutilized, why boots on the ground still matter, and why CCO’s deserve your pity. This blog is part two of two. Read part one here.

“We’re underutilizing compliance officers. They spend too much time manipulating data, trying to find that needle in a haystack when the amount of false positives is crazy. You have to change that mindset. Compliance officers have to become more human-dynamic. I used to walk the trading floor and interact with people. I’d take a different route to the bathroom every time. This way traders would stop me and say: ‘Wait! I have a question!’ You’d be surprised how long it would take me to get to the bathroom.”

“Today, you can ask Siri questions about all sorts of things. How about this one: ‘Can I take this client out for dinner?’ Those kinds of things are going to start to happen. So now you’re bringing compliance to the employee when they need it. It’s not, go to a website and read the rules. People aren’t going to do that. But we can start building systems that take the data, and let you know immediately that you can’t take a certain client out for dinner because you’ve already done that 40 times.”

“We’re really at a new age, of tech helping us become more cultural in our ability to change people’s minds. Now, I would argue, that’s really the CEO’s job. It’s the board’s job. But how many times do you get exceptions for the higher echelons? All the time, right? That has to stop. Because they’re the ones who are supposed to be setting the tone. So why aren’t they? And it never, ever resulted in consequences until Wells Fargo. People started losing board seats after that fiasco. So, the culture is slowly but surely changing. The digitalization of data is going to make everything much more transparent.”

“We had an ethics program at Lehman Brothers. It started from the top down. Every managing executive had to participate. It was all-day training, in-house. We’d talk about ethical dilemmas, and I was amazed by the answers we’d get. All educated people, all answering the same questions in very different ways. But it was good for them because they realized there was no one good answer for any of the scenarios presented, and that they should seek guidance when they have an ethical dilemma.”

“We’re in a situation where there’s a lot of pressure on the firms to get costs down. We hear it all the time: compliance costs too much. So we have to get the expense of it down. Some of that will be from consolidation. You’re seeing that already. I believe the world will be owned by platforms, not by systems. The technologies are going to have to come together for scale, for the smaller companies that need the help. So you’re going to see the tech come together. You’re going to see more pressure on compliance to do things differently, and that’s where you have to start to think differently.”

“We used to do just regulatory compliance, right? Now we’re doing cybersecurity. And culture and ethics. So now we have more on our plates. Pity the CCO’s. They have less resources and everything needs to be done tomorrow. It’s not an easy environment. How do we change it? I don’t know. But you start one conversation at a time. You have to get to your senior management and they have to buy in. They have to know that doing things right the first time, every time, and focusing on customer loyalty, is the best thing. Taking care of the client. That having customer churn is not a good thing.” 

“There are firms now embracing tech that are ahead of the game in investment management and decision making, because of robotics. Make no mistake, these firms will get ahead of you if you let them. So you have to go to your CEO and say, we really need this infrastructure because algorithms are now deciding which insurance plans will fit better with customers. Sales is no longer just geography. Computers are matching everyone and everything up for an optimum fit.”

“While our skillsets are definitely changing towards the tech side, I think we’re still five years away. Some firms come in as if they have the answer today: just buy our tech and it will solve all your problems. We’re five years away, easy, from some of these tech solutions working really well. We were talking earlier about paper statements being digitalized, and algorithms using natural language processing to read them. That’s very expensive right now. But typing it manually still works and isn’t as expensive.”

AI. Machine learning. There’s a place and a need for that. But there’s a place and a need for people, too. Compliance officers are going to become more and more technology officers. Technology officers are going to become more and more compliance officers.  If you’re going to start using machine learning and algorithms you have to make sure you’re not machine learning to the point of putting biases into the system. You have to understand it all. And the regulators are going to want you to explain it. To me, it’s still about boots on the ground. Learning right now is still in the head of the compliance officer.”