A few weeks back, alongside our partners, the Association of Professional Compliance Consultants (APCC), we hosted a webinar looking at how to build a culture of compliance for your organisation.
If you missed it, don’t despair.
We have just released the event’s full transcript, which is available to AGRC members.
Go ahead and download it below. Makes for riveting reading!
A huge thank you to Dr. Roger Miles, Co-Founder and Head of Faculty, UK Finance’s Conduct and Culture Academy, and Julie Ampadu, Director, Association of Professional Compliance Consultants (APCC), for their valuable insight into this challenging proposition.
Here are some of the event’s main highlights!
What is a culture of compliance and how would you define the ideal culture of compliance within an organisation?
Julie Ampadu: This is a really easy one for me actually because, when I’m talking to firms, I usually say something along the lines of whatever you used to believe about compliance is probably no longer true because compliance isn’t a tick-box exercise, it’s not an administrative function or a policing function, it’s all about engaging with people to reduce risk within the business, to reduce risk for the end customer and the consumer, and ideally it’s not a tick box exercise. So being a good compliance consultant and having a good culture within your firm is all about having really good relationships with the people you’re working with to enable them to trust you, to see that compliance isn’t a negative thing, it’s cognitive. The benefits abound when compliance is a positive compliance culture. So defining the culture means, for a positive compliance culture, that it’s seen as a business enabler and a consumer protection piece, a good business practice, rather than something that we have to do because the regulator tells us, and we have forms to sign and templates to fill in. That’s way dinosaur-like now, out of date.
How important is the role of Senior Management and the Board of Directors when it comes to building a strong culture of compliance for an organisation?
Roger Miles: So one of the conceptions people tend to have in the UK because we had this regulatory thing called SMCR and in other jurisdictions there’s SEAR and BEAR, this is an analogous senior managers regimes, but essentially that’s the regulator taking a point of view which they acquired, by the way, from behavioural scientists back in the early 2000s or at least just after the financial crash in 2008. The science said or led them to think, the regulators, that if you get the senior people to do the right thing, then everybody else will swing into line, that there’s a kind of trickledown effect that all we need is the senior leaders behaving in an exemplary fashion and somehow then everything’s going to be okay. I hate to have to say on that particular point the science was wrong and has since been superseded. So I was involved in a study which we did with a large number, I think 23,000 interviewees in Australia, those of you in the Australian jurisdiction will probably know where we’re going with this, there was the Hayne Commission, all about how Australian Consumer Finance was, let’s say, highly dysfunctional, and we studied what is the behavioural change when you’ve got a senior group of directors, board level people saying, “Right, I want you all on the front line to start sort of thinking more about a conduct and benefits to customers and that stuff, what’s the actual, let’s say, deflection what’s the percentage of behavioural change that happens when you’ve got an active board which is advocating for better conduct and engagement.” And when we analysed the results, we invited people then to guess. So, say you’ve got an active board of directors saying, “Right, we’re going to do an engagement good conduct programme, what is the spontaneous if you like percentage change of direction that you get from frontline staff? Is it maybe 10? Is it 15? Is it 20?” The answer is zero. So there is zero correlation between tone at the top and actual behavioural modification, behavioural change on the frontline.
What is the role of technology in actually building this culture of compliance?
Julie Ampadu: So in terms of compliance, I might have a differing view to others on this and so again this is my personal view. There is a role for technology in compliance, yet I’ve never come across an end-to-end technology function that manages compliance, because again compliance is all about people. So you may be able to access tools that support what you’re trying to achieve and give you the data that you need to be able to help you to make decisions and make judgments, but for me compliance is about people and that’s how I look at it. I struggle to move on from there.
What is the role of incentives and penalties in developing this culture of compliance?
Roger Miles: At industry level, we have this classic psychological problem and there’s a great grandfather paper called On the Folly of Rewarding A, while Hoping for B. So the behaviour A, which as an industry we continue to reward, is that the people who sell more stuff get more money, generally speaking. It is changing but it’s changing quite slowly. So quantity of sales, how many boxes did you shove out the door is what gets the bonus, not client satisfaction, not appropriateness of product fit, not product lifestyle, life cycle, long-term benefit, so we’re generally still in the position of encouraging short-term, what I call hit-and-run selling, just shove those boxes out the door and we give the most money to the people who do the most of that. Now, you could argue, okay, so flip that on its head and look at it the other way. So should we reward good behaviour in order to make an example of the people who are doing that exemplary conduct thing? Should we give bonuses to the people who give the best client service? Actually, no, because you then introduce moral hazard into the system. Someone who’s determined to behave badly is saying, “Oh, so hang on a minute, so John and Jane over here, they got bonuses for sort of exemplary conduct, so actually I’m not going to bother. In fact, I’m going to behave even worse because I’m not going to make my bonus anyway, so nobody cares so I’m just going to miss-sell stuff and try and make more commissions by miss-selling.” So you can’t introduce moral hazard by giving extra cash to the people who are behaving well because, actually, the default setting is you want everyone to behave well just as normal behaviour.