AML Compliance: The stakes could get higher…


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AML Compliance for financial institutions is a little bit like old-fashioned recipes that included ingredient lists but no instructions: You know the basic ingredients of good KYC/CDD and ongoing  AML Compliance, but how you put it all together—and whether your colleagues in your institution’s various divisions buy in—depends a lot on the overall climate for ethics and compliance in your organization.

LRN, an ethics and culture advisory firm that has been conducting a major survey on ethics and compliance in a broad range of industries for seven consecutive years, recently released its 2014 report, and one of their biggest take-aways regarding performance of ethics and compliance programs in general is the reporting structure in place. Specifically, programs whose chief compliance officers reported directly to the CEO or board of directors can be predicted to significantly outperform those reporting to general counsel or other leaders below the CEO level.

The LRN report states, “It seems likely that a more prominent ‘seat at the table’ for chief compliance officers reflects the greater importance accorded to their role and the issues in their organizations.”

This factor is akin to a false positive in financial institutions, however, because by law the chief compliance officer in a financial institution must report either to the board of directors or to the CEO—it’s not an institution’s choice but rather a requirement, so it can’t be assumed or even expected that it’s an authentic ‘seat at the table,’ as LRN describes this reporting structure in other industries.

In fact, LRN describes pressures for cash management and cost cutting as key factors in lower performing compliance environments, and both of those tend to be factors for financial institutions who by the nature of their business are inclined to be singularly focused on profits.

This push-pull—the CEO’s pressure for profits and the regulatory pressures for compliance—is experienced daily by Compliance officers in the financial sector who though they report to the board or the CEO are often seen as an obstacle to profitable ventures.

Perhaps the ultimate irony in the ongoing analysis of effective Compliance is that the focus is on compliance officers rather than on CEOs and boards of directors. The nascent attempts to fine individual compliance officers in the financial sector for compliance violations belies the fact that ultimately compliance programs operate as the CEO and/or board want them to operate.