The other day, Person asked for my feedback regarding his consulting proposal for resolving AML-related Consent Orders (COs). Here’s that conversation and a reflection on why banks cannot resolve said COs.
Me: You’re not telling me anything new with your two conclusions [“Lack of Governance and Oversight”, “Deficiencies in Tools”]. The New York State Department of Financial Services (NYDFS) has been the most proactive in issuing AML violations. Their website (https://lnkd.in/dHUiUGyH) lists all outstanding COs. You’re just repeating the shared talking points. What specific problems have you identified, along with your thoughtful solutions?
Person: For “Lack of Governance and Oversight”, I recommend bank-wide layoffs to remove underperformers.
Me: Still too bland. It’s always a leadership issue when bad employees are hired, and good staff are under-utilized. But you wouldn’t know which individuals fall into these categories without performing a meaningful staff assessment. This type of task would warrant its own, complex project. Since both “bad” and “good” Compliance staff rely on “Tools” for their work, what do you propose to solve broken "Tools"?
Person: I recommend buying another tool.
Me: Replacing a tool doesn’t guarantee that existing problems are resolved and from my experience, might create new ones. Remember, you need to identify the problem then apply an appropriate solution.
Person: Look at p-values?
Me: You’re on to something so please clarify.
Person: Examine the p-values of each transaction.
Me: P-values are not designed for individual transactions. At the most granular level, p-values are for variables then aggregated for multi-variable models. This means that I can identify if the Deposits variable is statistically significant then determine if the collective variables for the Mexico ATMs Model are also statistically significant.
Person: <<Silence>>
Me: Listen, both your conclusions lack meaningful depth. It’s more productive to focus on one than work on both simultaneously. For me, I would focus on resolving “Tools”. If previously broken “Tools” are functioning properly now, then that means at least one person understands how to use and fix them. A bank can build their staff around that reliable person and potentially resolve the “Lack of Leadership and Governance” issue. If you are going to propose fixing “Tools”, you need to demonstrate a strong grasp of how they work. For transaction monitoring, a lot of banks use logistic regression so understand how this approach works. I would also read into various AI/ML Tools as some banks are currently adopting those.
FYI, this conversation happened a year ago and from my understanding, Person never managed to demonstrate his understanding beyond repeating CO talking points (i.e. unable to secure an AML-related project engagement). Over that time period, the NYDFS website added seven additional COs.
#aloselosesituation!
