The concept of a ‘culture of compliance’ has been present for many years now, yet numerous compliance and ethics scandals indicate its seeming absence in many organisations. Without a genuine commitment to compliance, policies and procedures remain mere documents, and such scandals will continue.
Recently, a noteworthy instance exhibited how a corrupt culture can permeate an entire organisation. Boeing’s colossal compliance failure in 2020 involved the flawed design and inadequate safety measures of its 737 Max aircraft, which led to two fatal crashes. It clearly raised very significant concerns about the company’s commitment to regulatory compliance. Similarly, management-related issues, like Samsung’s recent legal troubles involving the indictment and conviction of its vice chairman, Jay Y. Lee, for bribery and embezzlement, cast a shadow over the company’s corporate governance and integrity.
These stories reveal corporate shortcomings in preventing, detecting and addressing non-compliant behaviour at an institutional level. But they also debunk the oft-repeated assumption that these are isolated incidents caused by only a few bad actors. It is surely more vital today than at any time in the past for organisations to engage in persistent efforts to establish ethical workplaces which can yield positive outcomes. Former U.S. Department of Justice Compliance Counsel Hui Chen draws parallels between today’s focus on fostering ethical cultures and past movements for worker safety, which led to improved worker engagement and financial performance. Chen predicts that a culture of respect and dignity can achieve similar benefits for all workplaces.
To this end, businesses need to diligently cultivate a culture that promotes compliance at every level throughout the organisation. But how to do this? There can be no one single model which matches the needs of each and every corporation or business, but it is certainly possible to build a foundation for a culture of compliance, by working through six important principles.
Foundational Principles
Leadership is the Cornerstone
In the field of financial services, cultivating a culture of compliance is pivotal, and leadership is the cornerstone. Leadership sets the tone, embodying the ethical compass of an organisation. By actively championing compliance, leaders can infuse this ethos throughout all organisational layers, ensuring that regulatory adherence becomes ingrained within daily operations. Moreover, it nurtures an environment of openness, where employees feel confident to voice concerns without fear of reprisal. This transparency is key to pre-emptively identifying and addressing compliance issues. ‘Starting with leadership’ is not just a mantra; it is a strategic approach that ensures a firm’s sustainability, reputation and ultimately, its success in the competitive landscape of financial services.
Do Not Turn a Blind Eye
Not ignoring compliance mistakes is a critical tenet in fostering a robust culture of compliance. Mistakes, far from being detrimental, present invaluable opportunities for learning and improvement. Actively addressing and learning from compliance errors leads to more effective strategies, preventing the recurrence of such mistakes. It nurtures a culture of transparency, where employees feel encouraged to report compliance issues without fear of punishment, thereby enabling early detection and swift remediation. Furthermore, it underscores the organisation’s commitment to compliance, strengthening trust amongst stakeholders, including regulators, clients and employees. In essence, not turning a blind eye to mistakes underlines the ethos of continuous learning and improvement in a financial services landscape.
Train and Test Your People
In building a culture of compliance within financial services organisations, the principle of regular and comprehensive training and testing is of paramount importance. Such training provides employees with the knowledge and tools needed to navigate the complex regulatory landscape, promoting an understanding of not just ‘what’ the rules are, but ‘why’ they exist. Regular testing, meanwhile, reinforces this understanding, ensuring that theoretical knowledge is translated into practical compliance. Through a cycle of feedback and improvement, these activities can identify and rectify gaps in the compliance framework. Ultimately, a well-informed and tested workforce is the strongest line of defence against regulatory breaches.
Compliance and Risk Management
The principle of aligning compliance with enterprise risk management is a crucial ingredient in the recipe for building a compliance culture. Essentially, this alignment signifies that compliance is not an isolated function but rather is integrated within the broader risk management framework of the organisation. This ensures that compliance risks, like operational, strategic or financial risks, are regularly identified, assessed, mitigated and monitored. Consequently, it prevents siloed decision-making, providing a holistic view of the organisation’s risk profile, and enabling more informed strategic decisions. It also reinforces the perception of compliance not merely as a regulatory requirement but as a business enabler, encouraging compliance ownership across the organisation.
The Effective Use of Technology
Making effective use of technology is a cardinal principle in constructing a strong compliance culture. The rapid digitisation and complexity of today’s financial services landscape demands robust, technology-driven solutions. These tools can automate routine compliance tasks, reduce manual errors and improve efficiency. More sophisticated technologies, such as artificial intelligence, can further enhance risk detection and predictive capabilities, enabling proactive rather than reactive compliance. Digitisation can also foster transparency, making it easier to track, audit and demonstrate compliance to regulators and stakeholders. Importantly, technology also aids in instilling a data-driven compliance culture, encouraging decision-making based on empirical evidence rather than gut feeling. Effective use of technology is an indispensable principle, strongly contributing to weaving compliance seamlessly into the fabric of an organisation’s culture.
Incentivise Each Individual
In crafting a culture of compliance in financial services organisations, incentivising ethical behaviour is a key principle. Rewarding such behaviour encourages adherence to compliance norms, signalling the organisation’s commitment to integrity and accountability. Incentives can take varied forms, from recognition and promotions to financial rewards, fostering a positive environment where ethical actions are valued. It shifts focus from mere regulatory compliance to a broader culture of ethics, ensuring that employees do right, not just for fear of punishment, but because it aligns with the organisation’s values. Ultimately, ‘incentivising ethical behaviour’ cultivates a proactive, responsible workforce, which fortifies the organisation’s compliance culture.
Principles for Success
Optimising a compliance culture in financial services extends beyond adhering to rules and regulations; it requires an organisational-wide ethos of responsibility, integrity and accountability. The principles laid out here promote an environment of transparency, proactivity and ethical conduct. However, it is essential to remember that there is no ‘one-size-fits-all’ approach. Organisations must continually adapt their compliance strategies to the evolving regulatory landscape, emerging risks and technological advancements. Moving forward, a dynamic, values-based and technology-driven compliance culture will undoubtedly be a critical determinant of success in the financial services sector.