Benjamin Giumarra
There is no question that the compliance, legal, risk, quality and similar departments (referred to as “compliance” for rest of article) within financial institutions have historically operated as cost centers, rather than drivers of beneficial change or a real competitive advantage. In other words, all defense, no offense. But this doesn’t have to be the case; compliance departments should reconsider their true purpose.
A decade after the financial crisis, departments focusing on regulatory risks have swollen in size and overall concern over getting compliance right has dominated board room discussions and stifled innovation. The complexity, strategic development and execution of resolving regulatory and technological issues in the financial industry also dominates these departments.
Confusion over regulatory and other requirements remains a drag on corporate decision-making and actions. A stronger compliance department has the chance to become a competitive advantage, not just an expense item.
This is highlighted in times when the need for speed is critical. A new advertisement needs to get approved. Of course we don’t want a lawsuit or enforcement action on our hands, but a delayed response causes a depreciation in value. In three weeks that same advertisement many no longer be as relevant or valuable as it was initially. A strong compliance department should allow marketing to move quickly – in part because of clear directions beforehand, but also simple efficiency in processing requests, among other things.
A great compliance department will allow an organization to perform at a high-level in markets and with products where competitors seem frozen and clumsy. It will also not only score well in an exam and minimizes harm to consumers but will achieve those results while the company is freely changing markets, products and operational processes to remain competitive.
Compliance success is not just defined by some minimal level of safety, but also by the department’s ability to be agile – that requirements don’t delay or negatively impact strategic or other business thinking.
Departments Need to Focus on the System, Guidance and Culture They Cultivate
Without a system, a compliance department is just a rat in a wheel – endlessly chasing the goal of perfection that is never actually attainable. A “system,” required in many cases by regulatory bodies anyway, requires an organized approach to managing applicable requirements, which allows what is otherwise a complex topic to be broken down into smaller, more manageable sections. This allows a really good department to know when the organization is safe enough, to then turn more attention to propelling the company forward. A typical system might be broken down into independent auditing, internal monitoring, training, corrective action, managing consumer complaints, preventative controls and policies/procedures.
The ideal compliance department prioritizes its guidance and advisory function, focusing on confusion as the enemy. Conceivably every single function of the company is subject to some type of compliance requirement, has the compliance team replaced the C-suite? The department members should pride themselves on being professional communicators who provide timely, clear, practical guidance in an educational and practical manner. The guidance given should come in many different methods and mechanisms, yet be consistent and credible. Many times, departments, in an effort to be most helpful, forget this.
A strong compliance department should consider itself responsible for fostering a culture of high quality: A culture where people are passionate about quality as a value, not as a requirement from above, where the compliance department takes responsibility for clarifying requirements and where everyone shares responsibility for acting within them.
There are a lot of examples of how a department may do this. Many are cheesy, with a compliance department using t-shirts, mugs and other small prizes to reward high quality. But a department shouldn’t allow itself to lapse into providing only negative feedback. Positive feedback should come at least as often. Rewards can be helpful, but recognition itself is most important. For example, an employee self-identifying a potential issue is one to be celebrated; in many cases, that employee stands a better chance of discipline.
Ben Giumarra is an attorney and director of quality assurance at Embrace Home Loans. He may be reached at bgiumarra@embracehomeloans.com.
