Elevating compliance key for financial services, says former HSBC head

These were the words of former HSBC Group Chief Executive John Flint, who launched the International Compliance Association’s 2021 BIG Compliance Festival. Flint delivered a keynote on elevating compliance within the business.

In a thought-provoking address, Flint considered the progress compliance has made over the last 20 years, as well as the strides the profession must continue to make in order to meet emerging challenges. The session prompted so many questions from the audience that he kindly agreed to take additional time to share his insights.

Catalysts for change

While positive steps have been taken to raise the profile of compliance in the years following the 2008 financial crisis, Flint identified three catalysts in particular that are currently driving the need for a continued elevation of the compliance function: fallout from the pandemic, the emergence of the new digital economy, and the transition to a low-carbon economy.

Regarding the first, he highlighted ways in which the pandemic is creating significant new workstreams for compliance practitioners. “Governments are now much more heavily involved in the day-to-day running, funding, and economic support of the global economy, and that’s not going to go away any time soon,” Flint explained. “They will want to know the resources they’ve committed are being managed well and efficiently, and that will create an impetus for good compliance work to ensure that’s happening in terms that are serving society.”

Balancing risk and opportunity

Flint was keen to take a balanced view of recent technological developments and their impact on financial institutions. For example, the audience sought his opinion on how boards should respond to the risks and opportunities associated with emerging technologies. In his response, he emphasized the value of keeping abreast of developments while also maintaining a clear focus on your organization’s purpose.

“It’s important not to get too caught up in all the tech hype, although you can’t ignore what’s going on,” Flint said. “It’s a question of staying connected, keeping an open mind, and learning as much as you can—but never forgetting that you’re first and foremost a bank, fund manager, or broker.”

Another delegate asked whether there is a risk compliance functions may overlook red flags within the current climate of increasing regulation and rapid technological development. Flint offered a pragmatic view of the situation:

“That’s always the nature of the compliance challenge. But working harder very rarely solves that kind of challenge. You have to work smarter. And while that sounds a bit glib, the good news is we now have access to technologies that mean working smarter is possible.”

“Financial services exist to serve the real economy. Society’s expectations of us change and good compliance functions help to anticipate that and help to position the business to be comfortable in that new world with those new expectations. Right now, society’s expectations are that financial services—and those of us working in the sector—must maintain high standards. And we have to accept that. I would encourage people to view fulfilling obligations on behalf of society as a privilege rather than a burden.”

Former HSBC Group Chief Executive John Flint

Flint noted the rules for governing the new digital economy are “being written as we speak” and stressed compliance functions have “a meaningful role to play in that process.” In later discussion, he expanded on this view.

“We’ve got to govern the digital economy in an effective way—one that ensures a fair exchange of value between all participants,” he suggested. “That’s a massive challenge, but it’s also a fabulously interesting intellectual puzzle to solve. For bright, confident compliance executives, it’s an absolute gift because there is going to be some amazing, meaningful work to be done, which, if done well, will have a positive impact on the lives of a lot of people.”

ESG in focus

Issues related to environmental, social, and governance (ESG) have risen rapidly up the corporate agenda in the last 12 months. Flint highlighted the transition to a low-carbon economy as a key area in which compliance must make its presence felt.

When asked whether larger international firms are currently doing enough regarding climate change, he was clear much more progress is needed.

“We all need to work on the basis we are not doing enough until we get the emissions underneath the trajectory we need to hit under the Paris Accord,” he said, adding that “everybody needs to be doing more.”

He also conceded that, although the notion international firms should respond to the challenge of climate change through greater collaboration and information exchange is “a nice idea,” it is impractical, largely because of competition law.

“I think firms should be looking to outcompete their rivals—being smarter, being more efficient, and more innovative with their ideas—rather than collaborating with them,” he said.

Flint recommended that, given the speed at which the climate agenda is moving, all major banks should have regular shareholder votes on their climate policies. “If the agenda accelerates away from you very quickly, you can feel exposed and that’s an issue for the management team,” he stated. “As a senior executive, I would want the comfort of an annual or, at least regular, shareholder vote. And I would expect to see more of that in the future.”

Purpose and social responsibility

The themes of social responsibility and purpose cut across all these drivers for change. Indeed, one delegate asked whether Flint believed regulated firms have responsibility to society, to which his answer was emphatic.

“Absolutely and unequivocally,” he insisted, adding that “there is ample evidence that if any firm in financial services doesn’t live up to the expectations of society at large, then there are very real consequences.”

When asked whether there is a lack of recognition in the public sphere regarding efforts the financial sector has made in fighting financial crime, his response was equally direct. “I recognize the frustration but, to be blunt, we have to get over that,” Flint said.

“Financial services exist to serve the real economy. Society’s expectations of us change and good compliance functions help to anticipate that and help to position the business to be comfortable in that new world with those new expectations. Right now, society’s expectations are that financial services—and those of us working in the sector—must maintain high standards. And we have to accept that. I would encourage people to view fulfilling obligations on behalf of society as a privilege rather than a burden.”

Speaking to heads and hearts

Flint strongly advocated the use of storytelling as a means of both elevating compliance and nurturing a culture of ethics within the business. Storytelling achieves this approach by providing “a link between the rules and the human impact” in order to “engage with people’s heads and hearts,” he explained.

By way of example, Flint shared the story of his experience with the 2015 Paris terror attacks, which took place while he was onboard a transatlantic flight. Upon touching down at Heathrow Airport to more than 300 new messages in his inbox, he knew he was in for “an interesting day” that “changed the way I thought about the challenge we had in front of us”.

“I started to think about the terrorists themselves and to pose the questions: ‘What if they bank with us? … What if we missed red flags?’” he recalled. “… That was a deeply uncomfortable place to get to mentally. … It shifted from knowing that I had to lead on this to being something I deeply wanted to do. The rebuild of financial crime compliance went from being just another thing on my ‘to do’ list, to being something I desperately wanted to do well.”

The human factor

When asked how risk and compliance functions help directors manage the overcrowded board agenda effectively, Flint suggested communicating with boards requires both accuracy and clarity. He also emphasized the importance of remembering board members are, at the end of the day, human beings.

“Getting the precision of the words and the tone right is important when communicating with boards,” he explained. “Before you go in, you first need to have a clear sense of how exercised the board should be on hearing about a particular issue, because how you communicate an issue can make a very significant difference to the amount of energy that is brought to bear in its resolution.

“But remember that, when they are hearing a piece of information, the first calculus each board member will always do is: ‘What does this mean for me? What does it mean for my workload, my reputation, and the standing of the firm I represent?’ And why do they do that? It’s not because they are particularly selfish—it is simply because they are human.”

Elevating the compliance function within the business is, therefore, a case of bringing out the human side. Indeed, Flint concluded with the following piece of advice:

“You need to look to engage your audience by making the work of compliance human using the power of stories. Because I think the underlying foundations and roots of all compliance work, once you understand them, are utterly compelling.”

The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.