The report is submitted to Association of Compliance Officers in Ireland (ACOI) for the purpose of competition to leading to Niall Gallagher Professional Diploma in Compliance Scholarship.Author: Polina DuginovaDue date: 04/01/20171Table of ContentsIntroduction ..
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.. 2 What is Compliance Culture? .
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.. 3 Why Is It Important to Have a Good Compliance Culture? …
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….. 4 Building Blocks of a Good Compliance Culture ..
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. 5People ……
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5Program ……..
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………………………………………………………………………………………………. 6Platform …………………………………………………………………………………………………………………. 6 How to Recognise a Good Compliance Culture? ……………………………………………………………. 8 Few Suggestions on How to Improve Compliance Culture………………………………………………. 9 Conclusion ………………………………………………………………………………………………………………. 10References ……………………………………………………………………………………………………………….. 112IntroductionIf we lived in a world where people robotically executed their tasks, then compliance culture wouldn’t matter. This is, however, not the case. The recent financial crisis with its consequent scandals of organisations failures has certainty taught us the lesson that having a good comprehensive compliance culture is crucial for an organisation’s survival, wellbeing and success. A poor culture can be a major driver of risk, while a good compliance culture may be its effective mitigant. Building a good compliance culture is now as important as never before. A 2016 survey by Thomson Reuters has revealed that 58% of the businesses believed ‘promoting a corporate culture of integrity to be the ultimate goal of their compliance and ethic programs’ (Coleman, 2016).But what is a good compliance culture and how may an organisation implement it or perhaps know that it already has one? This report aims to address these questions while focusing on financial industry. In a more detail, the report intends to define compliance culture and illustrate its importance for organisational health, it also discusses essential elements of good compliance culture and provides some practical suggestions on how a compliance culture may be assessed and improved.3What is Compliance Culture?Schein (1985) defined corporate culture as “the set of values and decisions that represent the manner in which individuals can perform their activities within the organization” and behaviours that may be considered appropriate (Carretta, et al, 2015, p. 10). When it comes to a good compliance culture, we talk about a positive culture of integrity that “embeds compliance into everyday workflow”, as well as sets the foundation and expectations for individual ethical behaviour across the whole organization” (Thomson Reuters, 2016). Deloitte (2015, p. 2) pointed out that strong cultures consist of two main elements ‘a high level of agreement about what is valued, and a high level of intensity with regard to those values’.4Why Is It Important to Have a Good Compliance Culture?Today financial institutions are faced with sticker-than-ever compliance laws and regulations, where regulatory bodies and law enforcement agencies have huge fines handy available to be issued for compliance failures. According to CNBC (2015), US banks were fined over $204 billion since the financial crisis. In other words, having a poor compliance culture is simply too expensive to afford these days. In addition, an organisation that does not have good compliance culture in place risks a big stake of damaging its reputation. For instance, recent HSBC’s compliance errors and lack of proper oversight severely hit the bank’s reputation when systematic aiding of tax avoidance was discovered. (Wintour, 2015) But perhaps the most importantly, a good culture of compliance is a key ingredient that is capable of bringing people, processes and technologies to work effectively together. According to Deloitte (2015, p. 2), ‘if the culture of the organization does not support principled performance, then all of the people, processes, and technologies that are put in place to mitigate ethics and compliance risks cannot be effective’. A good culture can serve as a long-term strategic advantage by fostering and enhancing compliance efforts. A poor culture, on the other hand, can impede compliance efforts by ignoring hidden risks and harmful impacts on the organisation, its counterparties and the society as a whole. (Grand, 2005)5Building Blocks of a Good Compliance CultureAccording to Grand (2005, p. 3), a good compliance culture ‘includes strategic vision and relates to larger strategic goals’. It must therefore be comprehensive and built across the three main cornerstones of an organisation: people, program and platform.People People may be the key success or key obstacle on the way to a good compliance culture in an organisation. Thus, a climate, in which problems aren’t hidden but can be openly communicated to superiors, is a crucial element of a good culture. (Steward, 2015) In a sound culture of compliance, people are committed and have clear responsibilities. They know what specific compliance element they are accountable for. According to Grand (2005, p. 3), ‘without a commitment to compliance, even the best policies and procedures will be useless’. This is, however, most likely be impossible without the tone at the top, senior management example and proactive leadership. ACAMS (2017) explain, ‘the best persons to encourage employees to embrace a culture of compliance are the chief executive officers, directors, CCRs and CCOs. They are required to lead by example and by communicating the organization’s core values with passion and assertiveness.’ Furthermore, in organisations with good compliance cultures, people are treated as the most valuable assets. Their work is recognised and rewarded, their achievements are shared across the organisation and their training and education needs are well addressed. Negative ideologies are combatted and examples of good behaviour are publicised. The organisation’s core values transform in the minds of all managers and employees, who passionately believe that what they are doing is best for their organization and for the society in general. (ACAMS, 2017)6ProgramIn a good culture, the compliance program must be robust blending effective training for individuals, incentive systems and communication channels across different compliance functions, particularly including enterprise risk management (ERM). Deloitte (2013) explain that ‘coordinating compliance risk management with ERM provides the operational basis for establishing, strengthening and validating the link between compliance and enterprise value’.Moreover, a good culture compliance is characterised by effective procedures for the treatment of transgressors. The program is vigilant and addresses the risks that arise in each strategic area. It establishes control points for the risk elements and ensures controls are well documented for internal and external purposes. (Grand 2005)Effective communication is another integral element of a sound compliance culture. ‘Clearly defined strategic vision and objectives are central to effective management, and must be consistently communicated across all areas and level of the organization’ (Grand, 2005, p. 3). In addition, communication systems, protocols and processes need to work in an extremely efficient, synchronized manner free of procedural and communication breaches. (ACAMS, 2017)Grand (2005, p. 5), further highlights that in a good compliance culture effective confirmation and correction processes are part of every day’s life. The author defined confirmation as ‘the way an organization ensures its progress is based on solid evidence’, and explains that ‘complex systems require monitors that can see through the complexity to identify the signs of processes or individuals operating outside the established boundaries’. The correction, on the other hand, involves ‘effective handling of incidents, but must also include identifying and addressing the root cause of each problem – not merely the symptoms’.PlatformPlatform in the context of this report is information systems and tools, as well as their use and management. A compliance culture would not be good enough without sound IT systems and tools that should match effective compliance reporting and investigation needs. According to Deloitte (2013), ‘the right technology and data architecture, both within and outside the compliance function, can go a long way toward improving compliance efficiency and7effectiveness. Automating controls, for instance, can help lower costs and increase reliability, especially if the controls are first rationalized to reduce duplication’. Having explained the three Ps of compliance culture (people, program, platform), it is also important to stress that a lasting sound compliance culture is not possible ongoing changes. According to ACAMS (2017), ‘a static program is a program at risk’. This is because the world does not stay the same. On contrary, it is made up of ever changing laws and regulations, fraudulent schemes, filing requirements and changes in technology, as well as internal changes, such as mergers and acquisitions, new products and services, new customers, changes in key staff, etc. Hence, a good compliance culture is a flexible culture that is capable of continuously incorporating changing priorities.8How to Recognise a Good Compliance Culture?Measuring a compliance culture and identifying areas of improvements is a challenging task. The reality is, there is simply no standard metric or prescription capable of doing that. ‘One way of knowing when culture has failed is when things go wrong and get worse or just go wrong again’, states Steward (2015). To help identifying whether the culture is on the right track, Grand (2005, p. 6), suggest assessing it based on three Cs: communication, confirmation and correction.? Communication: Are the messages to personnel consistent? Are the individuals know what is expected of them? Are vertical as well as horizontal communications being utilised? Are thy effective?? Confirmation: Are processes and activities being measured and results reported? Does each position have a defined set of competencies? Is performance measured and rewarded? Are monitoring and feedback in place and effective?? Correction: Are trends and anomalous patterns being detected and information about them is directed into the measurement, reporting and response cycle? Are things being fixed in a timely in effective manner because the responsible parties are identified and held accountable?9Few Suggestions on How to Improve Compliance Culture? Recognise that culture is a product of a wide range of contributory factors and then decompose it into its main drivers so that the role of each can be considered and developed. (Andrews, 2016)? Make everyone vertically and horizontally accountable for compliance.? Encourage openness, honesty and trust across the organisation.? Embed compliance into approaches, systems and outputs. (Coleman, 2016)? Make continuous improvement a part of the compliance culture.? Do not zero-in on errors, but rather create an environment where employees know that the organisation is the most interested in their overall success.? Recognise employees for their good work and behaviour.? Have training that is suitable for the level of employees’ knowledge and skill.? Utilize innovative tools that promote efficient work and maximum retention. (McGovern, 2016)? Tell stories that serve as a consistent reminder of why employees serve the company they do. (Lowenthal, 2014)10ConclusionThis report has discussed a compliance culture. It attempted to demonstrate what good compliance culture means and what benefits does it bring to a financial institution. The report has also illustrated main components of a good compliance culture and provided few suggestions on how a culture of compliance may be enhanced and improved. Overall, a sound compliance culture should run through a financial institution like the proverbial wording in a stick of rock. It should be in every person, every element of program and platform. Only then an organisation can position itself to effectively recognize, identify, report and avoid potential risk exposures.11References ? Andrews, P. 2016. Culture in UK Banking Online. Available from: https://www.fca.org.uk/insight/culture-uk-banking Accessed 21 December 2017. ? ACAMS. 2017. Fixing What Is Not Broken: Should You Make Changes to a Satisfactory AML Program? ? ACAMS. 2017. The Importance of Having a Solid Compliance Culture.? Carretta, A., Farina, V. and Schwiser, P. 2015. Banking Regulation towards Advisory: The “Culture Compliance” of Banks and Supervisory Authorities.? Coleman, S. 2016. Five Ways to Embed a Compliance Culture into Your Business Online. Available from: https://www.perivantechnology.co.uk/compliance-blog/five-ways-to-embed-a-compliance-culture-into-your-business Accessed 30 December 2017.? CNBC. 2015. Misbehaving Banks Have Now Paid $204B in Fines Online. Available from: https://www.cnbc.com/2015/10/30/misbehaving-banks-have-now-paid-204b-in-fines.html Accessed 28 December 2017.? Deloitte. 2013. Eight Ways to Move Toward a Culture of Compliance Online. Available from: http://deloitte.wsj.com/cfo/2013/06/07/toward-a-culture-of-compliance-eight-initiatives-ccos-can-lead/ Accessed 23 December 2017. ? Deloitte. 2015. Corporate Culture: The Second Ingredient in a World-Class Ethics and Compliance Program Online. Available from: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-aers-corporate-culture-112514.pdf Accessed 29 December 2017.? Grand, C. H. L. 2005. Building a Culture of Compliance. CHL Global Associates Sponsored by IBS America.12? Lowenthal, S. 2014. 7 Ways to Improve Your Compliance Culture without Breaking the Bank Online. Available from: https://elearningindustry.com/7-ways-to-improve-your-compliance-culture-without-breaking-the-bank Accessed 22 December 2017. ? McGovern, P. 2016. 4 Steps for Creating a Culture of Compliance Online. Available from: http://complianceandethics.org/4-steps-creating-culture-compliance/ Accessed 19 December 2017.? Steward, M. 2015. Culture and Governance Online. Available from: https://www.fca.org.uk/news/speeches/culture-and-governance Accessed 18 December 2017. ? Thomson Reuters. 2016. A Culture of Compliance Online. Available from: https://risk.thomsonreuters.com/content/dam/openweb/documents/pdf/risk/infographic/a-culture-of-compliance-infographic.pdf Accessed 29 December 2017.? Wintour, P. 2015. HSBC Scandal Caused Horrible Damage to Reputation Online. Available from: https://www.theguardian.com/business/2015/feb/25/hsbc-scandal-horrible-damage-reputation-chairman Accessed 29 December 2017
