Impact of Culture and Conduct on Compliance - White Paper

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In the not too distant past, senior management within financial institutions may have regarded failure to comply with anti-money laundering (AML) requirements as low impact. The 2007/8 financial crisis as well as subsequent scandals in financial services have shown the error of this approach. When it comes to AML, the current COVID-19 crisis may pose an evolving and unpredictable threat. To avoid a repetition of the previous mistakes, financial institutions must now put into practice lessons learned from the past; the most urgent one in my book, is that institutions should be adopting a culture of compliance with a ‘live and breathe’ approach to regulatory requirements.
 
In a recent article in the Economist, Jürgen Stock, secretary-general of Interpol, was quoted as saying that COVID-19 may create the ideal conditions for the spread of serious, organised crime. Moreover, Mr. Stock believes that the immanent global economic depression will offer these criminals a chance to extend their reach deep into the legitimate economy. As COVID-19 motivates criminals to evolve their operations, those responsible for stanching the flow of ill-gotten gains into the legitimate economy must stay one step ahead; and this includes financial institutions with their AML obligations.
 
I recently published a white paper on the lessons to be learned from the last financial crisis. For those interested in how a culture of compliance can address complex misconduct relating to AML, this paper is well worth a read. Through reviewing a number of high-profile case studies, I come to the conclusion that at the heart of many AML failures is an institutional culture that treats AML training and procedures as merely means to meet regulatory requirements. The case studies show that these banks failed to ‘live and breathe’ regulatory requirements and that the institutional culture prioritised compliance as merely a tick the box exercise, thereby failing to communicate to employees the priority of compliance and the flexibility of decision making and behaviour that may be necessary to fulfil their AML requirements.
 
Culture is a complex issue. For those interested in how RegTech can enable an examination of institutional culture, through diagnostic tools, the white paper is a must read. In the paper, I explore how The Mizen Group, a RegTech firm based in New York, has developed a suite of tools to help boards and their compliance officers assess the extent to which their institution demonstrates the characteristics of an organisation with a strong compliance culture.
 
The financial crime threats posed by COVID-19 mean that now is the time to commit to a culture of compliance from the ground up. Launderers and criminals are capitalising on the chaos created in the wake of the pandemic and are seeking ways to out-manoeuvre the financial institutions who are generally playing catchup. In response, board of directors and executive management need to be proactive and flexible in their thinking and develop a ‘live and breathe compliance’ mentality.  This will only occur in a healthy compliance culture, wherein employees are empowered to internalise the importance of complying for the right reasons. The first step towards the goal of a healthy compliance culture might be employing tools like Mizen’s innovative culture diagnostics to assess their institutions’ cultural strengths and weaknesses. 

Feel free to contact the RegTech experts at The Mizen Group for further information.

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This blog also appears at Peter Oakes' blog