26 May 2020, 11:26
26 May 2020, 11:26
For many Board members, compliance is about reputation. According to The World Economic Forum, on average more than 25% of a company’s market value is directly attributable to its reputation.
In other words, 25% of a company’s intangible value is Reputation Capital.
“CEO’s don’t care about Compliance, they don’t want to know when money is being laundered” is something I have heard once or twice over the past year. However, this was an opinion given by one or two people definitely not at the forefront of the FinTech world.
Nevertheless, due to my own experience with senior management within financial services being quite different to this. I entered into a discussion last week with CEO’s from number of well-known and influential FinTechs, Challenger Banks and few from traditional banks. I asked them about their relationship with Compliance. Of course, I assured anonymity. The statement rang true for the old world, pre-financial crises.
CEO’s care about Compliance and about Reputation. An email with ‘potential reputational damage’ tend to escalate quicker than sting of financial losses.
The newer institutions also made it clear that they don’t have the luxury of putting their reputation at risk. While catching up in one of Shoreditch’s slightly cooler cafes last week, the CEO of one UK based challenger bank told me: “Neither ourselves, nor any of our direct competitors (other challengers) are considered systematically relevant. It provides us with certain flexibility for sure but also means that we don’t have the luxury of being ‘too big to fail’. I am reminded on a daily basis that if we don’t work hard to constantly earn the trust of our various stakeholders we are going to be dead in the water”.
Of course, times change; when I studied law in Munich I had never even heard the word ‘compliance’. A fact which amuses many today. Nothing is learnt in the classroom but very quickly a lot learnt on the job.
When does an entrepreneur learn about compliance? Mostly (if not only) on the job. When it becomes a necessity for a healthy business operation.
“Compliance is important to company culture and compliance is connected in helping your business scale. It took me time to realise this, but once I did, life got easier” one of the CEO’s told me over drinks. Everyone should respect Compliance and try to understand what compliance is about.
But the RegTech phenomenon is not explained by exponentially growing compliance costs. The first thing that companies do to solve their Compliance problem is, by deploying manpower (understandable). Yes, according to the FT the big banks spend over $1Billion per annum on compliance.
Compliance is now viewed as a competitive advantage. This may in large part be down to the strong-minded MLROs and CCOs who have managed to shape the minds of their Board members, or it may be a shift in the general attitude. Whatever the case, it is one the wider financial system is grateful for
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