September 24, 2019

The global financial crisis exposed widespread misconduct in the financial services industry, with poor risk & compliance culture being identified as a key contributing factor to the endless scandals that beset almost every major financial institution over the last decade.

In the banking industry alone, over USD 1 trillion in industry profits is estimated to have been wiped out as a result of this bad behaviour. In response to heightened regulatory scrutiny, and to defend themselves against an onslaught of fines and penalties, financial institutions across the world worked around the clock to bolster their risk and compliance efforts across their three lines of defence. In more recent years, most of these efforts have focused on enhancing their first line of defence (i.e. the business units) to drive greater individual ownership and accountability and encourage a movement from rule-based to value-based behaviour.

Employee education has been a key focus for most institutions, with the industry spending USD 10 billion on compliance training alone in 2018[1] (with approximately three quarters directed at online delivery). However, ongoing scandals provide a clear indication that a decade’s worth of compliance training has failed to shape industry risk culture in a meaningful way.

Worse, frequent compliance training dolloped out indiscriminately to staff, as is still the knee-jerk response of many organisations, is not just a waste of valuable resources. Though such a simplistic strategy may appease Management’s conscience, because of the detrimental effect on staff engagement and motivation, it is likely to be counterproductive to achieving the desired mindset change.

Financial institutions need to take a more strategic approach across the entire training value chain – including employee identification, learning needs assessment, material selection, employee incentivisation, and performance supervision – in order to properly address employee mindsets. Greater attention should be paid to employee engagement levels through improved monitoring of their learning activities, incorporating these insights into reviews and compensation / promotion decisions. We see the appropriate use of such solutions as critical in driving behavioural outcomes.

While more effective compliance training serves as the fundamental catalyst to shaping employee attitudes to risk, it cannot operate in isolation. For organisational risk culture to evolve in a more meaningful way, a holistic strategy focused on driving employee ownership and accountability to encourage value-based behaviour is needed.

[1] Quinlan & Associates, Fixing the Train(ing) Wreck, September 2019