Post 2008, financial institutions continue to be faced with more regulation than ever before. The Compliance function has had to raise its game, with growing departments and, for many firms, direct reporting to the CEO or CRO. The second line of defence has got closer to the front line. A great deal is riding on it and yet, when it comes to hiring a new Chief Compliance Officer (CCO) and their senior team, the carousel mentality remains, with the same people doing the rounds. This conventional mindset underestimates the challenges facing modern day Compliance departments.
Compliance is in the spotlight
Boards are being charged with delivering a top-down approach to changing corporate culture, embedding more risk awareness and a strong sense of ’doing the right thing’. The reliance on (already stretched) Compliance departments has intensified as they are tasked with helping the board drive cultural change.
Many Compliance departments have at least tripled in size since 2008, as they strive to help business units and functions navigate the complexity of the new regulatory agenda. However, the leadership team has not necessarily adapted to the changing demands placed upon it.
The required competencies of a CCO have shifted
With larger teams and rising costs, off-shoring, outsourcing and technology are all tools the modern CCO has to deploy to ensure their department keeps pace, yet many Compliance leaders have had limited experience in these areas. CCOs are now required to protect and influence the bank’s culture and brand and as a consequence many have assumed a more influential and visible role, requiring a detailed understanding of the business strategy.
Until recently, investment in securing the best talent in the Compliance function has lagged behind other financial services infrastructure functions, which have had to become more integral to the business. The CIO is a good example; once a pure technologist and now enmeshed in a raft of operations that underpin an entire company, from the customer interface to the supply chain.
Strategic insight is a prerequisite
The new style of leader in Compliance needs to be cut from different cloth, totally immersed in the business and more connected to internal and external stakeholders. With a strategic insight into the way the business works, the CCO must not restrict or block trade, but recognise the opportunities and threats to competing effectively and fairly whilst enabling growth. Compliance needs to go beyond ensuring that robust processes are in place to comply with existing regulation; it should be akin to a business development or strategy function, not just reactive but looking ahead, predicting change, being prepared and retaining competitive advantage.
Take off the blinkers
Finding the ideal leaders for Compliance requires peripheral vision, looking outside the confines of the Compliance department. They could be working in the front, middle or back office, in functions such as trading, finance or operations. They could be gaining valuable experience within risk management or internal audit. This non-conformist approach can extend beyond the CCO role holder to the structure of the function: by exploring the DNA of the compliance management team, a variety of complementary skills can be brought to the table by other members of the department.
A broader skillset
So what defines the ideal leader in Compliance?
A CCO who is one dimensional and does not have the skills to use compliance as a strategic driver of performance will not add value to the business. The new style CCO’s skillset needs to have breadth and depth. As well as understanding and interpreting policy and the regulatory landscape, requisite skills must include cost management for a larger department, procurement, outsourcing relationship management, digital know-how and, above all, commercial awareness. An innate understanding of the impact of regulation on the customer offering and associated business processes is imperative. With typical investment banks’ Compliance departments comprising >200 staff across diverse locations, people management is also an essential skill.
Demand for CCOs and their senior teams has already outstripped supply. As well as competing with each other and other financial institutions, banks are competing with regulators and consultancies for the best candidates. It’s time for the financial sector to be more pro-active, to halt the CCO merry-go-round and put their bet on a different horse, not a one-trick pony. Fail to beef up the quality and relevance of their Compliance function’s leadership team and companies risk being dragged back by regulation and losing their competitive edge. What goes around, comes around.