Jennifer Openshaw

Compliance Costs: No Ceiling In Sight

These days, Chief Compliance Officers should be awarded combat pay. In a recent think piece reprinted in the American Banker (paid subscription required), author Jennifer Openshaw claims that CCOs will need a new tool: a crystal ball.

“The key is that they have to be more risk identifiers than ever,” says Barbara Stettner, managing partner at the international law firm of Allen & Overy. “The expectation is that CCOs will have to look around the corner for the organization—where is tech taking us, and what are the global risks the firm will be facing given the business line they’re engaged in? They can’t just be putting fires out anymore; now, it’s about thinking ahead. I have this new tech, or a new generation that can’t get off iPads, so how does that impact compliance and my role?”

Openshaw thinks that three key future risk areas for CCOs will be technology, cybersecurity, and new investment products and markets. Layered onto this smorgasbord of cutting edge risks is the impact of social media.

Social media platforms are evolving along with technology, and that can complicate the life of a CCO. The old marketing and advertising rules won’t change much, but the forums—Twitter, LinkedIn, and so on—will continue to develop and pose significant challenges to the industry.

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Social media platforms are evolving along with technology, and that can complicate the life of a CCO. The old marketing and advertising rules won’t change much, but the forums—Twitter, LinkedIn, and so on—will continue to develop and pose significant challenges to the industry.

…David Rozenson, counsel and senior consultant at Boston Compliance, sees an inherent compliance conflict looming.

“As the social media platforms become more complex, the best approach for CCOs may be to keep it simple—to establish basic principles and prohibitions regarding employees’ use of social media and stressing that they apply to all communications outside of the work environment,” he says.

Unfortunately, the easy approach may mean that your more social media-savvy competitors, who take more risk but spend the time and money to manage it, leave you eating their dust.

As Openshaw also observes, these evolving areas of risk mean that spending on compliance will not be decreasing.

Expect more pressure to find return on investment on the higher mechanisms required for compliance, and more struggles between CCOs and CEOs on the subject.

As I’ve noted in the past, because the commercial banking and credit union businesses are highly regulated, they’re poor venues for wild and wooly types at one end of the spectrum and anal-retentive bean counters at the other end of the spectrum. The financial institution regulators want you dancing the waltz, and if you insist on jitterbugging, sooner or later you’ll be bounced from the dance hall. On the other hand, in an era where risks are increasingly sophisticated, you can’t skimp on compliance. You may not need to sit behind the wheel of a compliance Ferrari, but driving a horse and buggy won’t cut it.

Yes, it’s tough to make a buck in the current environment, and not merely due to the Federal Reserve’s damn-the-savers management of interest rates. Elevated compliance costs are one reason for the consolidation of the banking industry (to achieve economies of scale), as well as for the dearth of de Novos (although other factors drive both trends). But, there you have it. It costs more to comply now than it used to cost, and it is likely to cost even more in the future.

And the beat(ing) goes on.

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