Compliance training in banking - How to

The reason compliance training in banking has become more important is because the banking space has changed in the last decade or so.

The world is becoming more global and complicated for banking and finance. The growth in extraterritorial enforcement, the overlap (and even contradiction) of different regulatory regimes, and the digitalisation of banking and finance; all mean that banks are facing a new and complicated regulatory environment.

Financial institutions and banks need comprehensive compliance programs and training that covers every law and regulation that affects their business if they are to avoid the unwelcome consequences of regulatory fines or litigation.

The complexity of the current regulatory environment exposes financial institutions to risks from the government at home and governments abroad. In order to navigate these dangerous waters, banks need their teams to be well versed in the rules and regulations and know when foreign rules might be triggered (such as when a US Citizen opens a bank account abroad).

A successful regulatory compliance program begins with a solid foundation. Employees must participate in the right training to fully understand the meaning of this complex regulatory environment and the required levels of integrity that apply to their work.

Compliance has become, global, complex, and costly

A study conducted by Duff & Phelps projects that compliance costs will more than double by 2022. Firms typically spend 4% of their total revenue on compliance, but that could rise to 10% by then.

While many firms are still working hard to comply with existing regulations, there is even more regulatory change in store. Potential new rules on the horizon include Operational Resilience and later phases of the Securities Financing Transactions Regulation (SFTR).

Banks will want to stay on top of any current regulatory obligations to keep up to date with any changes.

But keeping up with current regulations isn’t enough. You need to document compliance and that your processes (even processes with suppliers) are compliant.

The cost of compliance is so great that it can interfere with the ability to innovate, deliver customer value, and reduce operating costs. And reducing spending on regulatory compliance is not something that can be easily achieved – especially when penalties for non-compliance are high.

Reducing the cost of compliance is about both reducing your risk and reducing the cost of managing your compliance teams.

Well-trained employees have higher levels of motivation, a better knowledge of their client’s expectations, the market, and common traps and risks.

Globalisation of regulation

From US regulations like FACTA, which applies to any US citizen with a bank account abroad, and to the bank in which the account is held, to the EU’s GDPR which applies to any “EU data subject”; regulatory enforcement is becoming increasingly global.

To combat this and reduce risk, banks need not only the best possible training regimes but they also need strong internal processes.

Their teams can’t be expected to know all the possible regulations but they should be able to identify when a regulation might apply and to flag up questions to the compliance team for help.

Human error

While bank employees can’t be expected to know all the possible regulations, banks should put in place processes to protect against costly human errors.

Human error can be costly in banking. This can take the form of bad processes, poor behaviour, and just plain mistakes.

Human error is costly for businesses and governments alike. A spreadsheet error in 2012, cost UK Taxpayers £40 million.

In the US, Citigroup accidentally gave away $900 Million which it was unable to recover.

Companies can only win the fight against risks through better training, better processes and investment in digitisation and technology.

FCA fines pose a massive risk

While we’ve discussed a lot of the risk from foreign regulation. The truth is that there is plenty of risk here at home as well. In the UK, the Financial Conduct Authority (FCA) aims are to protect consumers, promote fair competition, and enhance market integrity.

According to research conducted by the FCA, in 2020, nearly £200 million in fines were handed out to UK companies. These penalties act as a clear warning to any companies who aren’t taking financial compliance as seriously as they should be.

One of the largest fines handed out by the FCA in 2020 was split between Lloyds Bank plc, Bank of Scotland plc, and The Mortgage Business Plc. These fines totalled £64 Million and were due to mistakes in the handling of customer data relating to borrowers who were behind on mortgage payments. Above and beyond the fines, the banks involved were ordered to pay around £300 million in compensation.

Improving compliance training through technology

To meet these challenges successfully, financial services compliance teams need to embrace new technologies and new approaches to learning.

Digital transformation in banking has become so big that it borders on a useless buzzword. But the truth is that the Fintech space is full of innovative new solutions to protect against human error, fraud, and non-compliance.

Deloitte has written extensively about the risks and advantages offered by some of these new tools. Their report, The future of fintechs: Risks and regulatory compliance should be required reading for banks and offers some great insights and ideas.

However, there is a different aspect to digitalisation that Deloitte doesn’t address in this paper and that’s the digitalisation of training and learning, and how that applies to compliance training in banking.

Digital experiences & behavioural science

People learn through experiences, and there are tools and services that can help you train your employees for compliance.

Digital experiences are new solutions that create an immersive educational experience for users. The goal of this technology is not just to make the training experience more captivating but also to make it more accessible, memorable and rewarding.

Digital experiences offer banks a powerful new way to train their employees but not all digital experiences are right for the space. The best not only know the banking space, but they also build their tools with a knowledge of how we, as human beings, learn best.

Behavioural science and digital learning

It’s natural that people forget what they learn over time. To overcome the process of forgetting, employees need to learn through repeated practice.

Josh Bersin is the founder of a leading industry advisory firm focusing on HR. He summarised the following points in an article, writing, “neurological research has proved that we don’t learn well through ‘binge education’ like a course. We learn by being exposed to new skills and ideas over time, with spacing and questioning in between.”

The process of learning involves forgetting as well. We take two steps forward and then one step back. There is no point in expecting long-term results from a training program that doesn’t fulfil certain conditions. The program should extend over a longer time frame. This is based on the research-backed idea of spacing learning, which is broken down over a longer period of time so as to increase retention.

This limitation in how our brains work and process information is just one example of how digital experiences need to be optimised for how we learn.

Behavioural Science seeks to understand how human beings behave and react to stimuli – how our brains work. In complex regulatory environments, a focus on actions rather than simply knowledge can have a transformative effect on the types of interventions you design. At its heart, behavioural science is a rigorous practice of identifying what individual groups need, at what time to ensure they act appropriately. We use an approach founded on the COM-B model to achieve this in our solution design, as well as a number of other design frameworks we’ve developed ourselves to make this process easier to use.

At BestAtDigital, we believe that the mix between behavioural science and digital experiences offers the best digital learning experiences.

In a world of ever-expanding global regulation, banks need continuous training and learning systems that are built with the best available science and technology. At the same time, they need a partner who knows the banking space.

At BAD, we leverage behavioural science and help businesses by crafting immersive digital learning experiences. We have extensive experience in the banking industry and would love to speak with you about your compliance training challenges.