Does your firm’s financial crime training stand up to scrutiny?
Financial Crime Training is been one of the main influential pillars of not only financial crime[1] prevention but a change of mindset, it has been a focus of regulator supervisory reviews throughout US, EU and UK. Since the 2008 crash and emphasised more recently by breaches of trust i.e., Well Fargo cross selling scandal, Estonia etc regulatory bodies have pinpointed Governance tonality, senior management responsibility and staff training as key preventative mechanisms of two highlighted issues within firms; financial crime risk and treating customers fairly – both caused by a profit focused culture which needed to be addressed. This message of ‘culture change’ has been made evident by the EU directives/regulations, regulatory speeches, the Senior Management Regimes (SMCR) and the heavy fines issued for those firms not adhering to adequate financial crime risk systems and controls as well as culture (i.e., firms selling high commissioned products and services that are not in their customer’s favour).
The Financial Conduct Authority (FCA) published a discussion paper (DP18/2) labelled ‘Transforming Culture in Financial Services’ in March 2018 followed by a more recent discussion paper (DP20/2) in March 2020. Both papers state the importance of culture through Purpose, Leadership, management and rewards and governance arrangements. The key objectives behind the SMCR’s five conduct rules were change, from a profit-driven fearful culture (liner thinking) to one of self-awareness, authenticity, aligned goals and shared beliefs (systems thinking).
The papers express the importance of ‘shaping behaviour’ through ‘collective assumptions, values, beliefs and expectations’ our firm’s values, incentive structures, policies and procedures are aligned then this equates to a shared sense of purpose. If the staff cannot be trusted to produce the same quality of outcomes unless management are pushing them then we may have either hired the wrong person (purpose unaligned), the person needs training (lack knowledge and /or experience) and / or the most likely one being that the person is uncertain about his/her roles and responsibilities, therefore this needs to be clearly defined to the point where they must be accounted for their given responsibility. This would develop ownership, trust and loyalty to the firm as well as the shared purpose.
Top level commitment, feedback loops on the norms, personal communication, expression of interdependency and adequate training to be provided, where necessary, retraining. The FCA produced similar papers e.g., Treating Customers Fairly (2006), Behavioural Economics (2013), Vulnerable Customers (2015), Behaviour and Compliance in organisations (2016) and the updated version of Transforming Culture in Financial Services (2020), the FCA has not produced these discussion papers for fun, they are driving change and the smarter firms have started to take note by clarifying / creating /changing their purpose, incentives, communication and most of all their training strategy to drive this message forward.
[1] Financial crime refers to a wide range of criminal offences including money laundering, terrorist financing, bribery, corruption, proliferation, cyber financial crimes, sanctions violations, various types of fraud (bank fraud, securities fraud, insider trading, market manipulation, insurance fraud, Medicare fraud, corporate fraud, etc.) and other types of crimes against property.