Navigating compliance risk has grown increasingly complicated in recent years.
What began with a significant uptick in regulation in the wake of the 2007-2008 financial crisis has evolved into an environment where changes come often. Regulations like Dodd-Frank Act Stress Tests are being rolled back while others, such as beneficial ownership rules, are getting stricter. The only certainty is change.
Financial institutions, at the urging of regulators, have largely responded to regulatory complexity and uncertainty by throwing more bodies at the problem, dramatically expanding their risk and compliance teams. The staffing surge made sense for a time: Before the financial crisis, headcounts widely fell below the level needed to fulfill expanding regulatory demands. But most institutions caught up between 2009 and 2012, and perhaps even exceeded their true need for resources.

In the three years that followed, regulatory pressure to increase staffing leveled off. At the same time compliance leaders were using technology more effectively to make their organizations more efficient.

Today, compliance leaders confront a powerful opportunity: to pivot to a rational, data-driven staffing approach that dramatically increases their efficiency through more rigorous evaluation and rationalization.

The time to pivot is now

Compliance leaders know that further efficiency opportunities exist, but a decade of regulatory pressure and resistance to efficiency efforts have obscured the true scale of these opportunities. The struggle today is to understand how new technology and smart data solutions would best apply within their organizations. To properly consider this, leaders must first understand, in a profound way, the inner workings and day-to-day responsibilities of their risk and compliance team.

In this environment, every leader must ask: Do I know what my team members are doing? How much time are their tasks taking them? Who are they interacting with and how? If a leader cannot answer these questions, then it is time to take a closer look at the organization.

Consider the following:

  • What are the core operational drivers of staffing levels?
  • What are the sensitivities of these drivers to changes in regulatory pressure?
  • What are the true costs in terms of time and expense of current activities?
  • What technology is in place? Is it being used to its fullest capabilities?

Moving toward efficiency 

To achieve impactful and scalable results, compliance leaders must allow data to drive their decisions. The best way to do this is through three key activities:

    1. Develop a comprehensive qualitative understanding of the roles, expectations, activities, and contributions of the risk and compliance team by conducting discovery sessions to get a sense of what their responsibilities are and how they spend their days.
    2. Build a quantitative understanding of the organization to test for staffing standards, consistency, alignment, and overall efficiency. You should emerge with a granular data set that tells you each person is doing, how long it takes, who they are doing it for or with, etc.
    3. Determine the positioning of the organizational design relative to both hard and soft requirements – how does capacity reconcile with the shifting nature of demand? This effort should be informed by the quantitative analysis, aligned with broader business goals and scaled with technology.

Back to the future 

Taking those steps and making informed decisions is only half the battle. To capitalize on the potential efficiency gains, you must:

  • Clearly define the roles and responsibilities within your organization
  • Load-balance and modify as a method to enforce procedures
  • Make rapid, team-level staffing changes in response to updates of rules through executive action
  • Use the data collected to support role alignment changes and a more efficient use of FTEs
  • Develop a clear and concise story for regulators regarding the changes that were made and their benefit using the collected data

Data gathering tools 

In our experience, leveraging analytics and technology solutions is the most efficient and effective course for achieving the right talent mix while effectively managing risk and compliance. Unavailable just a decade ago, these solutions have evolved to handle screening, monitoring, reporting, and other functions, and at huge volumes. Today, these technologies are used to replace manual processes such as OFAC checks, risk scoring and case management. Technology, such as robotic process automation, can now tie two disparate systems together to eliminate the need for duplicate entry and reduce the number of false positives that general fuzzy logic screening can produce. All this means that employees can spend their time doing more valuable work and realigning to roles that leverage their unique expertise.

To identify where technology can be leveraged in a more effective way and to identify the best roles to align resources to, we recommend using a rational, fact-based staffing approach.

Based on our experience with rapidly growing organizations, adjusting for the tempering effect of regulatory scrutiny, we estimate that using this approach will yield first-wave efficiency gains of 15% to 25%.

Change is constant

Volatility in the banking industry is a given. Over the past several months, we’ve seen significant regulatory changes—with some regulations rolling back, and others becoming more restrictive. The key is achieving a level of efficiency that allows for scalability in either direction.