Corporate Compliance Programs Hit Refresh With Data-Analytics Tools

Starling Team
The shift toward data-driven corporate compliance programs has a new accelerant: the U.S. government. Companies are scrambling to figure out how to meet the latest expectations. In June, the U.S. Justice Department instructed its prosecutors to ask companies that come under investigation whether their compliance teams (1) have adequate access to relevant data, and (2) whether such data is being used to monitor for risks, and to test policies and procedures.

This push incentivizes compliance and risk staff to gain access to financial and operational data, and to adopt new technology solutions so as to better screen for risks before they erupt into crises.

Businesses have long used data to drive decision-making in other areas of the enterprise, but adoption of analytics tools in the risk and compliance space has been slow in part due to budget constraints, a lack of one-size-fits-all 3rd-party solutions, and a mindset of acceptance regarding current capabilities, despite persistent and costly risk management failures.

Consider: last year, a Microsoft subsidiary in Hungary agreed to pay $25 million after probes by the U.S. Justice Department and Securities and Exchange Commission found that it had used discounts on software licenses to fund bribes for foreign officials. During the investigations, the company began building a cutting-edge compliance analytics system that allows them to flag risky deals.

Not every company has the resources, technological know-how, or the desire to build an in-house system with the same scope, but all organizations must take a closer look at their compliance programs and data to meet expectations.  In every industry, and perhaps most importantly the financial sector, firms should work collectively to agreed metrics that serve to forecast the likelihood of risk management failures, allowing for horizontal industry review.

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FinCEN Files: Bernie Sanders and Elizabeth Warren Join Watchdog Groups in Calling for Banking Reforms

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Photo by Marco Verch

In wake of the FinCEN Files investigation, Bernie Sanders and Elizabeth Warren have joined watchdog groups calling for a crackdown on dirty money and banks profiting from it. Sanders and Warren called for tougher consequences for banks and their executives who move money linked to crime and corruption.

“Instead of arresting poor Americans — disproportionately African American and Latino — for possessing marijuana, let’s start prosecuting the crooks on Wall Street for laundering money for drug cartels, suspected terrorists and corrupt foreign officials,” Sanders tweeted. This message came less than one day after the International Consortium of Investigative Journalists’ release of the FinCEN Files, a global investigation revealing how banks allowed trillions of dollars of tainted money to flow through the financial system.

Warren also called for a crackdown on banks that are complicit in the spread of dirty money. “We must root out this corruption by strengthening transparency of financial networks and clamp down on the dark money that flows through the global financial system,” Warren said in a statement.

Transparency groups and some banking regulators also called for reforms after the release of the FinCEN Files, though their proposals focused on changes to the anti-money laundering system. 

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A Regulatory Perspective: The Drivers of Culture and the Role of Purpose and Governance

Starling Team
UK Financial Conduct Authority (FCA) Director of Wholesale Supervision, Marc Teasdale, recently delivered a speech on culture, purpose, and governance at The Investment Association, Culture in Investment Management Forum.

To begin, Teasdale touched on what the FCA means by culture, stating that, “we mean the typical, habitual behaviours that characterise a particular organisation. A firm’s culture in that sense is little more than the cumulative effect of the ways in which it acts.” He went on to explain that the four drivers of culture are leadership, people policies, governance and purpose. 

He also expanded on what purpose means to FCA: a combination of a firm’s business model and the way in which it thinks about the social or economic contribution it provides. A firm’s purpose should be clear and should manifest itself in an organization’s day-to-day operations.

Teasdale went on to pose the question: what does this mean for the asset management sector? A firm should be able to explain to its staff and its customers what value its basic business proposition provides, and to then to real rigor into how it assesses the extent to which it actually delivers that value. Where there is a mismatch, organizations must take action.

Governance for Teasdale does not simply refer to happenings at the senior level.  Rather, it includes the broader set of processes, systems, controls and arrangements by which decisions are made and business gets done. 

In his closing remarks, he touched on the importance of diversity and inclusion in firm culture. “If the basic purpose of the asset management industry is to act in the best interest of investors, that must mean all investors, irrespective of their gender, ethnicity or other characteristics.” 

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Centre for Banking Research launches Conduct Costs Project

Starling Team
Misconduct in the banking sector is costly.  A new report from the Centre for Banking Research Conduct Costs Project (CCP) provides detail.  The CCP examines the causes and costs of misconduct for the world’s leading banks.  Key findings from the latest report, based on data collected between January 2008 and December 2018, include:

Between them, 20 banks studied have had to pay conduct costs in excess of £377 billion (USD $433bn) during the data collection period. This includes everything from fines, judgments, and settlements against the bank, to disgorgement of profits, costs of repurchasing securities at par and private legal actions.

US banks incurred £202.5 billion (USD $260bn) – accounting for approximately 55 percent of these costs. UK banks paid £86.09 billion, more than twice that of Euro Area banks (£41.31 billion) and Swiss banks (40.19 billion). 

Nearly 60 percent of the £377 billion total was attributed to regulatory directed redress, with banks spending to repair previous conduct risk management failures or to demonstrate improved ability to comply with regulations.

“As we look to be entering another period of political and economic instability, banks will increasingly come under the spotlight again – as they were in 2008. It is vital that the sector maintains a level of compliance and stakeholder trust throughout periods of uncertainty,” said Professor Rym Ayadi, President of EMEA and Honorary Visiting Professor at the Business School (formerly Cass Business School).

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Westpac to Pay Record Fine for 23 Million Money-Laundering, Terror-Financing Breaches

Starling Team

Westpac, Australia’s second-largest bank, agreed to pay the largest fine in Australian corporate history, a $920 million penalty for breaches that included a failure to detect transfers that may have been used to facilitate child exploitation in Asia. The institution self-reported some of the breaches to the Australian Transaction Reports and Analysis Centre (Austrac) last year and made shareholders aware of the investigation.

Most of the breaches involved the bank’s failure to report international transfers to the regulator in a timely fashion. The bank also failed to retain records and carry out due diligence checks with potentially high-risk banks. “The failure to pass on information undermines the integrity of Australia’s financial system and hinders Austrac’s ability to track down the origins of financial transactions, when required to support police investigations,” said Austrac CEO, Nicole Rose.

The nation’s banking sector was also the subject of a royal commission – Australia’s highest form of public inquiry last year that exposed widespread wrongdoing in the industry. The cases come amid many investigations around the world into top banks for their alleged failures to prevent money laundering.

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