Banks must stop using compliance as a weapon

Banks must stop using compliance as a weapon

The banking community must rethink its strategy on compliance. This over-indulgence with compliance is not going down well with customers.

They must lay down the primary criteria for their due diligence before entering into any client relationship. They should make conscious efforts to ensure prospective clients are made aware of the requisite disclosures.

Bankers are keen to show that compliance is a priority; thus, they highlight it much more in filings than in actual reviews. It seems their zealousness is more for regulators as a tick-box exercise on the checklist than about disclosure and its merits.

The related documentation is cumbersome, and it appears more of a formality than an objective assessment. This activism is playing havoc in the minds of customers. There is a shroud of secrecy with no transparency on the process of compliance.

In reality, banking sales teams with an eye on business do not necessarily make the disclosures set forth by their compliance. They even circumvent the process with the objective of not annoying customers. These eventually leave customers in the lurch, especially when confronted with compliance queries and putting business continuity at risk.

Compliance officers are apparently the killjoys for all those in the game. It is not just customers, but bankers too are miffed with them. It appears that people have reached a level of frustration with them, as they frown over every transaction for possible breach of convention.

Keep it straightforward

Compliance is about keeping on top of regulations, covering everything from capital and corporate governance to disclosure and diversity. “Know Your Customer” is a buzzword used by most bankers. It is also an easy excuse they use when it comes to any issue with service interruption.

It is common when specific transactional processes or credit-related transactions are placed on hold. First, blame all the ills on compliance and then own up their process failures that have nothing to do with compliance. At times, these bankers, due to their risk aversion about any exposure, deflect the blame on to the client.

Adding manpower

Compliance headcounts continue to swell as high as 10 per cent or more of the workforce. There is a significant spike in people working in compliance, risk, and other control functions compared to 2008 when it was just over 4 per cent of employees. They have spent over 5-8 per cent of their cost on this function.

The customer objective of seeking a relationship with a bank is built on trust, ease of doing business, and transparency - all of which is in tatters

- Tariq Chauhan of EFS Facilities Services Group

The multifold increase in resources on compliance is unprecedented. No doubt, the world is a different place with challenges posed by money laundering, cyber attacks, and organized crime, and banks need to strengthen their preparedness.

Erosion of trust

Nevertheless, this widening trust deficit is also a matter of concern. It is uncalled for, as it is diluting the trust of its patrons. This is undoubtedly impacting the very purpose for which people have chosen to come to the bank.

Banking is the oldest institution in the world where trust rules. The customer objective of seeking a relationship with a bank is built on trust, ease of doing business, and transparency - all of which is in tatters.

Banks have a duty to abide by transparency; so they should not only take signed undertakings but ensure they run their clients through the due compliance process before entering into any relationship. In advance of any transaction, if that requires additional compliance checks, these must provide advance information.

They should ensure relationship teams have made comprehensive disclosures, and they must make a customer outreach to engage the customers. There must be sufficient checks and balances to guarantee a compliance purpose is not diluted. However, it should also not be misused or misunderstood as a way to cover banks’ own mistakes.

Clients must be given assurance about compliance being there to safeguard their interests. With apt guidance from banks, customers can be prepared to meet any KYC needs as well as meet compliance requirements before they conduct any business. It must not be feared and neither must it be used to undermine a business.

- Tariq Chauhan is Group CEO at EFS Facilities Services Group.