Being a banker isn’t easy. And it hasn’t been ever since the 2008 financial crisis. 2008 marked the year when almost the entire world lost faith in the ethics and integrity of banks. Bankers were dubbed as greedy money grabbers. Ten years have passed, and banks are still suffering from that reputation. The general public still has little trust in banks.
With the fintech revolution, traditional banks are facing competition from disruptor banks. New banks that enter the market don’t have a reputation of being unethical. The question arises: how to sustain your business if you’re a traditional bank?
The banking business has always been a business that asks of customers to have a great deal of trust. If there’s no trust in your bank, customers won’t be willing to store their money with you. It’s a long time ago however that clients still had a personal banker who was the face of the bank and the key factor to build that trust with clients. Nowadays local banks are disappearing, and banks require their clients to handle more of their banking online. This asks for even greater efforts to be able to show you’re ethical and act with integrity if you want to be able to retain your customers’ trust.
Ethical banks such as the Triodos bank are proof that all of this is true. These ‘green banks’ aren’t just complying with the rules. Their mission is to do good in the world. This means that they won’t invest in businesses that might be compliant but aren’t necessarily contributing to a better living environment, such as tobacco companies or weapon manufacturers.
Not only are these green banks booming now. They will remain to do so in the future. Millennials are the people born between 1981 and 1996, meaning that this group of people is now at an age where they’ve started working and building their families. This group is surpassing the Baby Boomers generation in size. Meaning that they’ll soon represent the biggest group of consumers. And what’s important to millennials? They spend their money on businesses that have high integrity and ethical morals.
Integrity in large part is based on how well you’re capable of staying compliant
There’s a significant role for compliance on the perceived integrity of banks. It’s also somewhat of a hidden role because nobody ever says about a bank: “They’ve never had compliance issues.” However, if a bank ever does have a compliance issue, it’s an immediate scandal and seen as evidence that banks haven’t learned anything from the financial crisis. Customers and the general public alike will say: “See, they still only care about money.” So, if you manage to stay compliant, don’t expect to be treated as a hero. But it’s an important factor in how well your bank will perform from a sustainability viewpoint.
So, the best thing you can do is to solidify your compliance to perfection. Make sure you don’t miss any positive alerts. Know your clients and make sure you’re aware of what’s going on in your bank. Be in control.
It’s important to be proactive in your compliance investigations instead of being reactive
Proactive investigations in compliance are only feasible when you’re in control over your compliance. Most banks, however, are hardly able to manage their current workload. In 2015, Lexis Nexis and the British Bankers Association already rang the alarm about the current AML system. They indicated that it isn’t effective enough and they especially condemned the fact that it’s reactive in nature. Since most banks are too preoccupied with checking off the tick boxes of regulatory requirements, they can’t do any proactive investigations, and they have no time and resources left for strategic planning to combat financial crime or even to identify emerging financial crime threats.
To truly be sustainable you need to consider to be more than compliant
If you’re in control of your compliance, you’re already doing better than a lot of other banks. But, for the sake of sustainability, you need to go even further than being compliant.
We mentioned how green banks invest in businesses that add to the development of a better world. To be perceived as an honest bank means choosing humanity over money. Which not only means, for example, funding sustainable energy companies but also refraining from dealing with businesses that do harm.
How to take control
Rule-based monitoring isn’t sufficient anymore to take control of your compliance. In fact, most of the transaction monitoring systems currently in use by banks do only that: monitor transactions. But money laundering, for example, can’t be caught by a system that is as straightforward as rule-based monitoring and looks at individual transactions only as money laundering usually starts with small payments that aren’t detected by the system.
Regulatory-wise it’s also impossible to keep up with compliance with rule-based monitoring as regulators are shifting more and more to imposing rules that for example prevent banks to process payments to companies that operate in certain industries rather than to put limits on individual transaction amounts.
With principle-based monitoring, many different factors are accounted for in assessing a payment. Rules are used, but the signals that these rules give are enriched with amongst others the following information about a customer:
- Behavioral patterns; what kind of behavior does a client usually show? Is there anything different about his behavior in this particular case?
- Network information; who’s the client connected to?
- Risk-based monitoring; is this a high-risk or a low- risk client?
If banks manage to elevate the quality of their compliance, it will significantly increase their chances to sustain their business. If it’s not by avoiding fines from regulators, then certainly by upholding their reputation. By updating current systems with modern technology, banks have a great tool to help them take back control. But even for banks that are in control, modern technologies help to become more proactive in investigating integrity issues as well as to strategize and prepare for what’s ahead adequately.