Wanted: An Army of Compliance Officers

Ivan Schneider, Writer, specializing in financial technology | 11/7/2012 | 9 comments

Ivan Schneider
Transaction monitoring for money laundering, fraud, and other financial crimes can be automated to a certain extent, but there's still a critical human element involved in the process. At the annual Sibos banking conference, held this year in Osaka, Japan, a panel of compliance experts explored the implications of the growing need for analytics applications in financial crime.

Automated tools can detect suspicious transactions, but it takes active hands-on activity to follow up on leads, eliminate false positives, and discover ways people game the system. To be a compliance officer, you have to be able to think like a criminal, and you need the moral fiber to avoid becoming one yourself. You also have to be an effective team player within complex organizations. Compliance roles are not always easy to fill, yet the industry will have to find large numbers of compliance officers just to keep up with the high volume of transactions coming into the global banking system.

It's basic math with exponents. The overall number of transactions is increasing exponentially. Globalization has increased the number of potential trading partners. Mobility has made it easier to initiate transactions, and better core banking systems have enabled real-time processing. These factors have combined to spur a large jump in the number of transactions being processed through the banking system 24/7, across time zones and international borders.

Yet the people capable of monitoring the higher flow of transactions cannot possibly increase at the same blistering pace as the number of transactions. As a result, financial institutions are increasingly relying upon highly automated systems that minimize human-computer interaction. The open question is whether this increased automation has come at the price of being less responsive to new forms of financial crime.

The good news is that the expense of compliance technology can be shared across multiple areas of compliance. David Howes, global head of financial crime risk for wholesale banking at Standard Chartered Bank, said at the conference that, instead of having separate compliance teams for fraud, money laundering, and market abuse, you can establish a single compliance function that covers all those areas. However, you should ensure that the people within that team retain their specialized skill sets, even if the technology solutions work across disciplines. Cohesion in compliance should happen at the technology level, not the individual level. From an HR perspective, the need to retain multiple compliance teams accentuates the hiring challenge.

Even the best compliance software has to be managed with a hands-on process. Michael Cho, global head of anti-money laundering compliance at Northern Trust Company, said it's "not enough" simply to purchase software and turn it on. These products have to be tuned to the needs of your institution and the evolving profile of customers and their activities, Cho said. As such, there are both startup costs and ongoing maintenance costs in terms of human resources when deploying compliance software.

In addition, the compliance people have to be comfortable working within a complex organizational structure, having sensitivity to reporting relationships and oversight responsibility. For example, Howes cautioned banks to make business units responsible for integrating compliance into customer-facing parts of the business to avoid, say, having the compliance function designing your client on-boarding processes. Thus, compliance officers have to stand back and give the lead to the business units when it comes to designing the interfaces, but they should have the fortitude to step up and insist on strong compliance oversight when potentially suspicious transactions are involved.

Cho described how the business units and the compliance function might speak the same language in terms of the dollar value of compliance. One common measure of the value of compliance is "fine avoidance" -- the extent to which a bank can avoid getting in trouble with regulators. A better approach might be to assess how much work compliance is doing for the bank to support an individual trader, banker, or end client. For example, if a client generates an outsized number of suspicious activity reports, or if those reports generate a high number of inquiries or investigations, perhaps it's worth having a conversation about whether the client is worth retaining, even if the investigations turn up empty. With this approach, you may discover areas where it would help the business to ask the right questions in advance, so compliance doesn't have to get involved later at a higher cost.

The banking industry has to hire compliance officers with expertise in specialty areas, knowledge of the leading analytic tools and approaches, the ability to function in a multidimensional organizational structure, and an eye toward the economic impact of compliance efforts. Finding compliance officers with experience in these areas is hard enough. Now the industry has to attract a pipeline of qualified candidates to be the compliance experts for the immediate future of global, real-time, and mobile transactions.

In the comments, let's hear your ideas for building a compliance army.

View Comments: Newest First | Oldest First | Threaded View
Pedro Gonzales   Wanted: An Army of Compliance Officers   11/29/2012 10:39:43 AM
compliance officer on their way
I think being a compliance officer has many challenges, and the job challenges seem even more.  I think not many people know about this field, working with universities providing interships for computer science and even people in the accounting field will be a good way to promote such professions to others
Cyrus   Wanted: An Army of Compliance Officers   11/14/2012 3:13:37 PM
Re: Chicken or the egg?
@Lufu Your idea makes perfect sense in that people who have already committed these crimes know a lot about how to outwit the system. But, while you'll see these folks occasionally go into consulting (a la Frank Abagnale) and they can often have lucrative consulting careers, financial institutions themselve would never directly hire them. 

Financial instituions are scared to death about what can happen and focus all their efforts on policies, procedures and technologies to stop it. In a sense, they believe that if they through everything they can at something, it will never happen. So the last thing they want is someone who has the expertise and knowledge to potentially think of something they hadn't to come in and work for them. 

May sound crazy, I know, but that's the way the ball bounces.
WaqasAltaf   Wanted: An Army of Compliance Officers   11/9/2012 8:35:06 AM
Re: Turning out false positives
@ Ivan

"key question is whether there's a linear relationship between the number of transactions happening in a given time period and the number of compliance officers required to monitor those transactions."

You have raised an interesting question. IMO, there 'should' be a relationship between transaction numbers and compliance officers' army as the inherent risk increases. Another factor may be the type of account holders that are in a financial institutions. For e.g. if there is a larger % of salaried individuals, then the inherent risk is low however, if the % of businessmen esp those involved in foreign currency transactions is high then larger staff force of compliance officers will be required as judgmental monitoring will come into play.
Ivan Schneider   Wanted: An Army of Compliance Officers   11/9/2012 7:50:59 AM
Re: Chicken or the egg?
It takes a long time to train someone to be an effective compliance officer, making it an expensive proposition to scale the profession. Considering the crime itself often originates offshore, perhaps the solution is to attract offshore resources for compliance as well? 

 
User Ranking: Blogger
Ivan Schneider   Wanted: An Army of Compliance Officers   11/9/2012 7:48:45 AM
Re: Chicken or the egg?
Great example. Although in that case the people involved didn't have much of a choice. 
User Ranking: Blogger
Ivan Schneider   Wanted: An Army of Compliance Officers   11/9/2012 7:45:39 AM
Re: Turning out false positives
Yes, and the key question is whether there's a linear relationship between the number of transactions happening in a given time period and the number of compliance officers required to monitor those transactions. 

To an extent, a larger number of transactions may assist the automation effort by making the pattern recognition more sensitive, but there's still going to be a point at which it takes a person to interpret the clues.
User Ranking: Blogger
David Wagner   Wanted: An Army of Compliance Officers   11/7/2012 2:56:16 PM
Re: Chicken or the egg?
According to my wife, my brother-in-law spent a large part of his youth trying to plan the perfect crime, but he never committed one. Instead he is in...finance!

My guess is that the field always attracts the people it needs. there just may not be enough people like my brother-in-law in the world.
LuFu   Wanted: An Army of Compliance Officers   11/7/2012 1:34:05 PM
Chicken or the egg?

To be a compliance officer, you have to be able to think like a criminal, and you need the moral fiber to avoid becoming one yourself.


I wonder if it's easier to take a money launderer and train them to be a compliance officer or take an analytic-minded compliance person and teach them about criminal behavior? Here's an example of taking the a dozen criminal types and getting them to work for the greater good.

WaqasAltaf   Wanted: An Army of Compliance Officers   11/7/2012 11:40:13 AM
Turning out false positives
Truly, the compliance jobs do demand a lot of sense about how to differentiate between who is a suspect and who is not. There have to be good basic automated controls such as marking transactions flagged when they are outside the normal routine but further investigation depends on the staff and his responsiveness.


The blogs and comments posted on EnterpriseEfficiency.com do not reflect the views of TechWeb, EnterpriseEfficiency.com, or its sponsors. EnterpriseEfficiency.com, TechWeb, and its sponsors do not assume responsibility for any comments, claims, or opinions made by authors and bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.

More Blogs from Ivan Schneider
Ivan Schneider   10/30/2013   29 comments
Sears and Whole Foods will take a go-slow or no-go approach to microlocation services, executives from the companies said during a panel discussion Monday at the Seattle Interactive ...
Ivan Schneider   10/15/2013   8 comments
Alex S. Jones, lecturer on the press and public policy at the Harvard Kennedy School of Government, recently spoke to Harvard alumni in Seattle, and he pointed out that the invention of ...
Ivan Schneider   9/19/2013   24 comments
In response to the expanded range, frequency, and ferocity of cyberattacks against financial institutions, the financial services industry has upped spending considerably on ...
Ivan Schneider   9/11/2013   9 comments
Central clearing and other Dodd-Frank Act regulations have made it more expensive for the banks and brokerages to manage the tangled processes involved in post-trade activity: matching, ...
Ivan Schneider   8/13/2013   7 comments
With virtualization driving IT servers and storage toward a cloud-powered market for IT services, CIOs have to prepare themselves for what it means to be a buyer of commodities in a global ...
Latest Archived Broadcast
We talk with Bernard Golden about accelerating application delivery in the cloud.
On-demand Video with Chat
Register for this video discussion to learn how tablets can provide true business usability and productivity.
4/23/2014 - Dell Compellent performance and features make it an outstanding storage platform for SQL Server. Register for this webinar now.
E2 IT Migration Zones
IT Migration Zone - UK
Why PowerShell Is Important
Reduce the Windows 8 Footprint for VDI
Rethinking Storage Management
IT Migration Zone - FR
SQL Server : 240 To de mémoire flash pour votre data warehouse
Quand Office vient booster les revenus Cloud et Android de Microsoft
Windows Phone : Nokia veut davantage d'applications (et les utilisateurs aussi)
IT Migration Zone - DE
Cloud Computing: Warum Unternehmen trotz NSA auf die „private“ Wolke setzen sollten
Cloud Computing bleibt Wachstumsmarkt – Windows Azure ist Vorreiter
Like Us on Facebook
Twitter Feed
Enterprise Efficiency Twitter Feed
Site Moderators Wanted
Enterprise Efficiency is looking for engaged readers to moderate the message boards on this site. Engage in high-IQ conversations with IT industry leaders; earn kudos and perks. Interested? E-mail:
moderators@enterpriseefficiency.com
Dell's Efficiency Modeling Tool
The major problem facing the CIO is how to measure the effectiveness of the IT department. Learn how Dell’s Efficiency Modeling Tool gives the CIO two clear, powerful numbers: Efficiency Quotient and Impact Quotient. These numbers can be transforma¬tive not only to the department, but to the entire enterprise.

Read the full report
The State of Enterprise Efficiency in the Virtual Era: Virtualization – Smart Approaches to Maximize Gains
Virtualization is a presence in nearly all enterprise data centers. But not all companies are using it to its best effect. Learn the common characteristics of success, what barriers companies face, and how to get the most from your efforts.

Read the full report
Informed CIO: Dollars & Sense: Virtual Desktop Infrastructure
Cut through the VDI hype and get the full picture -- including ROI and the impact on your Data Center -- to make an informed decision about your virtual desktop infrastructure deployments.

Read the full report
SPONSORED BY DELL
CASE STUDIES
EBOOKS
PUBLIC SECTOR RESOURCES
VIDEOS
WHITE PAPERS
WINDOWS SERVER 2012 RESOURCES
A Video Case Study – Translational Genomics Research Institute
e2 Video


On the Case
TGen IT: Where We're Going Next

7|11|12   |   08:12   |   10 comments


Now that TGen has broken new ground in genomic research by using Dell's storage, cloud, and high-performance computing solutions, the company discusses what will come next for it and for personalized medicine.
On the Case
Better Care Through Better Communications

6|6|12   |   02:24   |   12 comments


The achievements of the TGen/Dell project could improve how all people receive healthcare, because they are creating ways to improve end-to-end communication of medical data.
On the Case
TGen IT: Where We Are Now

5|15|12   |   06:58   |   5 comments


TGen is breaking new ground in genomic research by using Dell's storage, cloud, and high-performance computing solutions.
On the Case
TGen IT: Where We Were

4|27|12   |   06:45   |   10 comments


The Translational Genomics Research Institute wanted to save lives, but its efforts were hobbled by immense computing challenges related to collecting, processing, sharing, and storing enormous amounts of data.
On the Case
1,200% Faster

4|18|12   |   02:27   |   12 comments


Through their partnership, Dell and TGen have increased the speed of TGen’s medical research by 1,200 percent.
On the Case
IT May Improve Children's Chances of Survival

4|17|12   |   02:12   |   8 comments


IT is helping medical researchers reach breakthroughs in a way and pace never seen before.
On the Case
Medical Advances in the Cloud

4|10|12   |   1:25   |   5 comments


TGen and Dell are pushing the boundaries of computing, and harnessing the power of the cloud to improve healthcare.
On the Case
TGen: Living the Mission

4|9|12   |   2:25   |   3 comments


TGen's CIO puts the organizational mission at the heart of everything the IT staff does.
On the Case
TGen Speeding Up Biomedical Research to Save More Lives

4|5|12   |   1:59   |   8 comments


The Translational Genomics Research Institute is revamping its computing to improve speed, storage, and collaboration – and, most importantly, to save lives.
On the Case
Computing Power Helping to Save Children's Lives

3|28|12   |   2:13   |   3 comments


The Translational Genomics Institute’s partnership with Dell is enabling them to treat kids with neuroblastoma more quickly and save more lives.
Tom Nolle
The Big Reason to Use Office

3|18|14   |   02:24   |   18 comments


Office and personal productivity tools come in a first-class and coach flavor set, but what makes the difference is primarily little things that most users won't encounter. What's the big issue in using something other than Office, and can you get around it?
E2 Editors
SPONSORED: Mobile Security — A Use Case

3|4|14   |   04:27   |   6 comments


New mobile security solutions can accommodate a wide array of needs, including those of a complex university environment.
Tom Nolle
Killing Net Neutrality Might Save You Money

1|16|14   |   2:13   |   11 comments


The DC Court of Appeals voided most of the Neutrality Order, and whatever it might mean for the Internet overall, it might mean better and cheaper Internet VPNs for businesses.
Tom Nolle
The Internet of Everythinguseful

1|10|14   |   2:18   |   19 comments


We really don't want an "Internet of Everything" but even building an Internet of Everythinguseful means setting some ground rules to insure there's value in the process and that costs and risks are minimized.
Tom Nolle
Maturing Google Chrome

12|30|13   |   2.18   |   25 comments


Google's Chrome OS has a lot of potential value and a lot of recent press, but it still needs something to make it more than a thin client. It needs cloud integration, it needs extended APIs via web services, and it needs to suck it up and support a hard drive.
Sara Peters
No More Cookie-Cutter IT

12|23|13   |   03.58   |   21 comments


Creating the right combination of technology, people, and processes for your IT organization is a lot like baking Christmas cookies.
Sara Peters
Smart Wigs Not a Smart Idea

12|5|13   |   3:01   |   46 comments


Sony is seeking a patent for wigs that contain computing devices.
Tom Nolle
Cloud in the Wild

12|4|13   |   02:23   |   15 comments


On a recent African trip I saw examples of the value of the cloud in developing nations, for educational and community development programs. We could build on this, but not only in developing economies, because these same programs are often under-supported even in first-world countries.
E2 Editors
SPONSORED: Is Malware Evading Your IPS?

11|18|13   |   03:16   |   4 comments


Intrusion prevention software is supposed to detect and block malware intrusions, but clever malware authors can evade your IPS in these five main ways.
Sara Peters
Where Have All the Mentors Gone?

9|27|13   |   3:15   |   38 comments


A good professional mentor can change your life for the better... but where do you find one?
Tom Nolle
SDN Wars & You Could Win

9|17|13   |   2:10   |   5 comments


VMware's debate with Cisco on SDN might finally create a fusion between an SDN view that's all about software and another that's all about network equipment. That would be good for every enterprise considering the cloud and SDN.
Ivan Schneider
The Future of the Smart Watch

9|12|13   |   3:19   |   39 comments


Wearing a bulky, oversized watch is good training for the next phase in wristwatches: the Internet-enabled, connected watch. Why the smartphone-tethered connected watch makes sense, plus Ivan demos an entirely new concept for the "smart watch."
Tom Nolle
Cutting Your Cloud Storage Costs

9|4|13   |   2:06   |   3 comments


Cloud storage costs are determined primarily by the rate at which files are changed and the possibility of concurrent access/update. If you can structure your storage use to optimize these factors you can cut costs, perhaps to zero.
Sara Peters
Do CIOs Need an IT Background?

8|29|13   |   2:11   |   23 comments


Most of the CIOs interviewed in the How to Become a CIO series did not start their careers as IT professionals. So is an IT background essential?
Ivan Schneider
The Internet Loves Birthdays

8|27|13   |   3:25   |   69 comments


The Internet has evolved into a machine for drumming up a chorus of "Happy Birthday" messages, from family, friends, friends of friends who you added on Facebook, random people that you circled on G+, and increasingly, automated bots. Enough already.