The importance of driving cultural change in Financial Services in 2021.
26th March 2021 by Brielle Hewitt
A Governance, Risk and Compliance focused company culture is more necessary (and expected) then ever in 2021.
Sometimes it can feel as though the financial sector has been through one compliance crisis after another. The global financial crisis of 2008 should have been a wake-up call for firms, but since then we have seen a litany of failures from LIBOR manipulation to last week’s revelations of Natwest being charged with money laundering. Regulators and firms have made huge steps in trying to stamp out bad behaviour, but clearly it hasn’t been enough to stem the tide.
What’s more, the Covid-19 pandemic and the rapid adoption of remote working has made compliance teams’ jobs infinitely more complex. With the risk of investigations, enforcement and jail more real then ever for those that work in, and run financial firms in 2021, it is the most important focus firms who need to be able to rely on the strength of their culture to prevent bad behaviour. Aside from the risk of fines and jail time, what is most important is that clients & customers expect us to ‘walk the walk’, not just ‘talk the talk’. But shifting perceptions, driving change, and most importantly gaining buy in across a firm from Leadership, all the way to junior employees is not an easy undertaking. We spoke to a range of leading industry figures about the challenges firms face when driving cultural change and how the industry can improve to stay resilient, respected and profitable in 2021.
Compliance is a leadership issue
The overwhelming response that came back from those we interviewed, was that compliance needs to be a leadership issue, and that lasting change needs to come from the top. All management will say compliance and best practice are at the heart of their firm’s values, but if junior staff then see enforcement action that is inversely proportional to staff members’ seniority or revenue contribution, they will act accordingly.
Bad behaviour often arises as a response to pressure, whether from management or shareholders. The more people feel under the thumb to deliver a result, the more likely they are to cut corners in order to achieve it. Paul Adams, founder of True Reflection Coaching and a specialist in cultural change within financial services organisations, noted the firms that put themselves at risk of poor cultures were those who had a didactic “tell culture”, rather than one that encourages open discussion and listening
“If you can embed much more listening and understanding throughout an organisation, then you’re much more likely to have an organisation that’s working together to meet an end goal,” He said.
‘Culture change’ is easy to disregard as being too vague, too intangible to meaningfully quantify, but Carroll Barry-Walsh, Head of Investigations and Risk Consultant at Barry Walsh Associates, pointed out compliance risk ultimately comes down to human risk, and so the only way to meaningfully address it is by fixing your firm’s culture.
“Every single thing that has ever gone wrong in this industry, no matter what it is, was because somebody did the wrong thing, or somebody else failed to do the right thing,” she said. “And so often, in virtually every case, there were bloody great red flags, or there was a clue that was missed.”
“Don’t ignore small problems,” she said. “Think of small problems as learning opportunities. But if you ignore them, they turn into big crises to be managed.”
The shift to remote working has placed an almost unmanageable burden on compliance teams over the past year. In order for firms to thrive as we emerge into the new normal, they need to be thinking about how to give their compliance teams the right support and visibility within the organisation.
“We have to look at things like technology coming in to support people, not to replace people”
“As people began to return to the office, management had an opportunity to rerun compliance inductions for their staff”.
Increasing the visibility and status of compliance teams within an organisation is the first step in making it a firm-wide responsibility. Any organisation that delegates oversight and enforcement of the rules to a small segment of its team is doomed to fail. Ultimately, management should look to make compliance a part of every employee’s job.
Among our clients at Fingerprint, the ones that we see having the most success with their compliance efforts are the ones who involve other managers from elsewhere in the organisation. This helps to prevent a ‘cops versus robbers’ mentality among more explicitly revenue-focused parts of the organisation and gives everyone a stake in the firm’s success.
View compliance as an asset
Too much of the discussion around compliance focuses on the downside – regulations are constraints on the business, compliance helps the firm meet its obligations. This misses the point. Firms that open their mind to the value-additive aspects of compliance can find many ways to have a positive impact on other parts of the organisation.
Take monitoring for example. What is often viewed as an onerous requirement can in fact be a valuable resource. The requirement to record communications means firms are sitting on a treasure trove of information on their team and clients. With a little creativity, this can easily be repurposed to train employees in what effective sales look like, how to handle negotiations, and much more.
Barry-Walsh observed that often firms do not start off in a place of viewing compliance as an asset, but can come around to it over time.
“When they go through this process, often they start out by thinking ‘oh Christ, we’re in a problem and we have to deal with it’,” she said. “And then eventually, if things go right, they get to the stage where they suddenly realise this actually is something that can help them become a better firm, not simply to avoid enforcement actions.”
She added that few truly appreciate the consequences they face if they are subject to enforcement actions. Beyond just a fine, she said, firms face a myriad of additional consequences such as loss of clients, trouble winning new business, damage to their reputation and more.
“Say the firm faces a fine of £30m or something, the remediation costs can often be in the hundreds of millions,” she said “And when that happens, CEOs suddenly realise that if they had spent a fraction of that on compliance a few years earlier, they wouldn’t be in this mess.”
Compliance must be everyone’s job
Of course, it is often not as simple as paying upfront to avoid a bigger cost down the road. A strong compliance culture requires that individuals – leadership especially – has the courage to question when things are going well, and publish bad behaviour even when it comes from those whose value to the firm is the highest.
“The single biggest piece of leadership in action I’ve ever seen was when a consulting firm discovered its largest hire had behaved unacceptably towards his personal assistant, so the CEO fired him,” Adams said. “I know that the CEO found that incredibly hard, because he’s got pressure from shareholders and stakeholders, but it sent the most fantastic message through that company that nobody is able to get away with that behaviour, no matter what level you are or how much money you bring in.”
Firms who do not take cultural change seriously now risk being left behind. As the next generation of financial professionals are elevated into leadership roles, we see a growing interest in issues of integrity. As more firms take action to ensure they are walking the walk, rather than just talking the talk, it will become harder for those with a tick box mentality to compete.
Compliance does not have to be a burden. With the right technological support, firms can use their compliance teams to go far beyond risk management and leverage their new resources to actively improve their sales.
Using new technology and devolving the responsibility of monitoring and supervising eComms and Voice can be used as a powerful and proven catalyst for great cultural change. If you would like to know more about how the ‘shared responsibility approach’ where managers throughout the firm are engaged and actively involved in monitoring and supervising their employees to guide and help them please contact myself, Sean Morgan – email@example.com