Cool it on compliance, says HSBC

While banks want to root out fraudulent activity as much as governments do they “need to take the temperature down”, said Bob Werner, global head of financial crime compliance and group general manager at HSBC. Speaking at a panel session on trends in financial crime compliance, Werner said: “Every time something goes wrong we don’t need the scalp of a regulator or the scalp of a banker.”

Like most of his fellow compliance professionals, Werner grapples with the full range of compliance challenges, , writes Dick Pirozzolo. He told a standing room-only crowd: “Most regulators work hard to understand our requirements. But when a culture of fear translates to our banks, we have to find a way to depoliticise the process.” His call for striking a balance stems in part from previous roles as a regulator. Werner was head of the US Treasury Department’s Office of Foreign Assets Control (Ofac) and Financial Crimes Enforcement Network (Fincen), prior to joining HSBC in 2012.

He added: “Many of us came out of government, but now we see some of our colleagues being held responsible and their careers destroyed and reputations damaged. As compliance officers you become much more defensive and take the most conservative position possible. That doesn’t serve the bank well and destroys innovation. I have had to ignore the risk but I see some of my colleagues are absolutely terrified.”

When politicians call for sanctions against, say, Russia, banks must comply, but the politicians and public do not understand the complexities and subtleties of implementation. The compliance responses are nuanced. It is not simply the case of checking off a name on a list. In some cases, portions of a transaction may be prohibited adding further to the complexity of meeting government requirements, according to Werner.

Panellists agreed with William Langford, global head of compliance architecture and strategy with Citi that the reporting requirements need to be the same for all institutions. “There has to be a level playing field,” he said. In some cases, regulators are going to other institutions wondering why they cannot provide information that Citi has available, according to Langford.

In addition, Jeffrey Harwin, a financial crime officer with Barclays Bank observed that compliance requirements increase the risk of maintaining customers with whom the bank does little business. He noted: “Having those customers on your books without any significant business is a cost. Do I really need 50,000 customers on my books,” when a much smaller number of them are active?

With the emergence of big data, financial institutions can be caught in the uncomfortable position of having information they didn’t know they had. As Langford stated: “Worse than not knowing, is having information that you didn’t know you had. The drive at Citi is to let the data tell me my inherent risk and exposure. The challenge is knowing – where does the data sit, how can I get my fingers on it and is it the right data?”

To be sure, financial crime regulation shows no signs of abating and regulatory trends will continue to have a major impact on business and operational lines and not just on compliance departments.