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Risk and Compliance: Data Science and Company Culture

This is the third article in a special series on financial crime. Previous entries can be read here and here.

Since the financial crisis, the largest global financial institutions have radically overhauled their business and operations in response to the growing push for greater compliance requirements. It is estimated that within a segment of the European market, financial institutions spend an estimated $83.5 billion annually on their risk and compliance departments across technology and employees.

Banks have launched partnerships with the public sector and startups alike, aimed at increasing awareness about how peer institutions are grappling with the evolving global regulatory environment and fostering innovation to meet their requirements without hindering their responsiveness.

For example, Standard Chartered, a 160-year-old bank, partners with startups through eXcellerator, an innovation lab that helps teams across the bank problem-solve, spread best practices and re-engineer from the ground up. This lab identifies new and better ways of doing things across the enterprise and serves as a gateway for the bank to foster innovation across diverse markets in Asia, Africa, the Middle East, Europe, and the Americas.

Many of the markets that banks serve look to OECD regulators for guidance and stability. But stability does not mean accepting the status quo.

Standard Chartered, for example, is conducting a simultaneous experiment in a mature and budding market: Just recently, the bank applied for one of Hong Kong’s first virtual banking licenses, and it did the same in Côte d’Ivoire. Similar businesses—but vastly different technology.

The Need for More

Despite all this necessary investment, the returns have been underwhelming. Banks struggle to share insights across internal departments, between relevant stakeholders or partners, and with regulators.

Part of this can be explained by the difficulty of modernizing the vast underlying banking technology infrastructure. Moreover, many banks are exploring how to fully use the massive amounts of technology they’ve invested in. Some institutions are ahead of others and rightly so: Different regulators have different tolerances for balancing stability of the financial system versus cultivating innovation that increases financial aptitude. This will take time.

But the problem runs deeper than that: Too many banks are failing to adequately train their vast new corps of employees. Technology is changing the way all facets of the modern workforce solve problems. Banks’ workforces simply aren’t keeping pace.

The Right Culture

Fostering a culture of innovation is a good start. Management must instill in employees a startup mentality and avoid developing what Jeff Bezos calls a “Day Two mentality,” wherein employees overlook outcomes and “the process becomes the proxy for the result you want.”

Employers must help develop the technical skills required to compete in the 21st century without losing sight of the soft skills that helped them get here.

Day One innovation means focusing on the customer and the result—in a marketplace where the customer has overwhelming options, only the best products and services will survive. This holds true even if your customers are, in fact, internal stakeholders or regulators.

One arrow in the quiver should be data-science skills. Banks already earmark training time and dollars, but a larger slice needs to go to training risk and compliance professionals with these valuable skills.

Data science has three components: data; software to use and explore that data; and most importantly, good questions to drive what one is looking for.

Acquiring data-science skills doesn’t require a yearlong master’s degree. In fact, much of this type of development can be done on the job, infused with intense training bursts. Early in my career, I took a two-week, employer-sponsored ethical-hacking boot camp because I was interested in cybersecurity. With a degree in political science, I understood the consequences of cyber threats, but couldn’t roll up my sleeves to compete as a young consultant without hard command-line skills. After spending eight hours a day for two weeks in a hotel conference room in rural Virginia, I walked away with marketable skills. This experience taught me that if a liberal arts major can learn how to hack into a simulated environment, a lot can be accomplished through booster shots of learning.

With a little creativity, banks’ training departments can design low-cost, flexible and effective courses by partnering with learning institutes, such as Coursera or General Assembly, that offer relevant boot camp-style programs. Banks could tailor these existing courses with their own specific case studies, involving employees across functions, age groups, geographies and up and down the organizational ladder.

According to a joint J.P. Morgan–Singapore Management University study, the ASEAN Economic Community’s core members—Singapore, Malaysia, Thailand, Indonesia, and the Philippines—face a shortage of industry-ready skilled workers. While Singapore is a high-income nation with a well-educated workforce, the International Labour Office cites that the country is facing a challenge of strengthening the role of innovation in its education and training institutions.

However, Singapore has started taking initiatives to strengthen innovation in its training institutions. Its Skills Programme for Upgrading and Resilience, for example, aims to equip employees with new skills for the future. Many similar systems and initiatives exist and serve as an example for other countries in the region.

Hand in Hand

To be sure, technology can’t replace social graces, curiosity or creativity, and banks’ training departments need to foster programs that boost soft skills as well. Data science can empower leaders to solve increasingly complex problems—but in the best cases, these hard and soft skill sets work together.

It’s no secret that the risk and compliance role is changing. Employers and employees must work together to acquire the technical skills required to compete in the 21st century while not losing sight of the soft skills that got us here.

*The opinions are the author’s own and do not reflect the views of his employer.

Jeremiah Sadow

Executive Director, Group Financial Crimes Compliance at Standard Chartered Bank

Jeremiah Sadow is an executive director at Standard Chartered in Singapore, where he manages the design and execution of the bank’s data strategy for financial crimes. Previously, he worked at Citigroup in New York and Hong Kong, within the regulatory, compliance and anti-money laundering departments. Mr. Sadow serves on the Institute of International Finance’s Regulatory Technology working group and is a member of the International Institute for Strategic Studies.

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