Having difficult conversations is key to modern compliance

We have been labeled as business prevention officers, because this too is our role when the business is bad business. Where colleagues see money, we see regulatory risk; criminal risk; reputational risk; and, nowadays, significant financial losses incurred by way of penalties and remediation.

We should make 2020 the year of the confrontational, disruptive, courageous, and innovative compliance professional who does not hesitate to call out the issues and protect the long-term future of their firm.

We are seldom credited with success and the provision of good news, because when we prevent something from happening, it doesn’t happen. When something bad does happen, questions arise as to the whereabouts of the compliance professionals and how they allowed the bad situation to arise. It’s a job where you are damned if you do and damned if you don’t.

Thus, how do we hold difficult conversations? They need not be unpleasant; the fact is difficult conversations are necessary and increasingly expected of the compliance professional. Increasingly, we must seek more data from colleagues, clients, and counterparties, because we need to know, understand, and manage potential risks to all parties. Many frauds succeed because people don’t ask important questions.

Nowadays, within a risk-based framework, banks and regulated financial service businesses must ask some clients for evidence of their source of wealth and/or source of funds. Is this intrusive? Maybe; would you answer such questions in the event they were asked to you? Undoubtedly, there is a wide spectrum of how such questions are asked, orally or in writing, but answers are more likely to be secured when the rationale and motivation for the questions is explained. Such explanations can incorporate the need for trust, data sharing, collaboration, and the protection of a client’s wealth or funds. At the same time, it is important to be honest with a client and advise them such data and evidence is required to comply with anti-money laundering laws, regulations, and requirements.

There is an equal demand for banks and regulated financial service businesses to understand, monitor, and control where the money loaned to clients is being spent. Some banks are turning away from funding fossil fuel businesses, as well as projects that run contrary to their own environmental initiatives. Thus, it is necessary to ask clients what they intend to use borrowed funds for and for relationship bankers to confirm their own knowledge and understanding of a client’s plans.

Then there are the difficult compliance conversations with relationship mangers and sales colleagues at times when business is rejected and/or suspicion arises. Our colleagues protest, because our actions challenge their judgment and potentially deprive them of commissions and bonuses. We look at the big picture, the longer-term outcomes, whereas they are often focused upon short-term, sometimes immediate benefits. They demand evidence of our suspicions and assert allegations are not proven or convictions are old and no longer relevant. They protest our information is out-of-date or unreliable, and the pressure is placed upon us to justify our actions and/or recommendations.

We must remind them of, and make reference to, the relevant training. Where necessary, we must reference applicable laws or regulations many times, as colleagues and managers will demand we do so. In addition, we should consider applying quotes from regulatory notices. The case of Jeffrey Epstein should be used to advise that one bank’s loss is not always another bank’s gain.

Overall, our message should be all about protection. Now more than ever, firms seek to undertake business with the right clients, to achieve the right outcome for all stakeholders, and our failure to initiate difficult conversations may hinder this outcome. We should make 2020 the year of the confrontational, disruptive, courageous, and innovative compliance professional who does not hesitate to call out the issues and protect the long-term future of their firm.