In today’s regulatory compliance environment, an organization’s failure to deliver on a promised remediation program, combined with additional embarrassing disclosures during the remediation stage, can cause a multitude of problems: eroding its relationship with regulators, causing significant internal resource drain, and often resulting in damaging reputational and financial impact.
It has become particularly clear that financial institutions with financial crime compliance problems face two key challenges: First, getting a handle on the full extent of the issue and, second, actually executing on the remediation plan.
Take the case of the Australian bank Westpac, whose ongoing legal and compliance troubles continue. In July 2020, Westpac disclosed that it may have breached money laundering and counter-terrorism finance laws on up to 450,000 more occasions than it originally thought—this is on top of the 60,000 to 90,000 additional breaches it disclosed in May; both instances are in addition to the existing 23 million breaches regulators are already litigating. As part of Westpac’s ongoing woes, the institution has admitted that, despite the pledges it made in 2018, when the compliance issues first came to light, it has failed to fix an “immature and reactive” risk culture and that it faced “challenges in execution and staying the course.”
Compounding this issue, several banks and financial institutions are currently also facing the unpleasant reality of cost-cutting measures caused by the global economic uncertainty, particularly surrounding issues with extra provisions for bad loans. The U.S. Department of Justice recently acknowledged that compliance functions are not immune to budget losses but flagged that cost-cutting must be done in a manner that does not compromise management of compliance risk.
How K2 Intelligence FIN Can Help
For financial institutions already dealing with complex remediation programs, a cost-cutting environment will exacerbate the challenge of getting the remediation program “over the line” to the regulators’ satisfaction. Banks and financial institutions should take stock of their compliance programs and consider the following:
The need to fully diagnose the issue in early days. When an organization realizes it has a problem, it is critical that the scope and methodology of the review ensures that all relevant issues are identified at an early stage, wherever possible. Providers like K2 Intelligence FIN (K2-FIN) have a keen understanding of the depth and breadth of issues at financial institutions—and know that often, there is no one-size-fits-all solution. They will work with organizations to develop a plan that ensures that issues are properly diagnosed at an early stage—such that a fit-for-purpose remediation plan can be developed.
The importance of remediation execution. As can be seen in the case of Westpac, successful execution can be held back for a number of different reasons, including difficulties in changing the organization’s intrinsic culture. Remediation programs will be scrutinized by regulators every step of the way—so it is critical that organizations fully and effectively commit to executing on their remediation plan. Clear roles and responsibilities, and accountability, are key to success.
Using their wealth of experience from both acting as a Monitor and directly assisting clients with their financial crime remediation programs, third-party providers such as K2-FIN partner with financial institutions to design sustainable remediation programs that not only resolve compliance shortcomings, but also recognize and address potential institutional barriers to success. K2-FIN works with institutions to ensure the remediation plan stays on track and critical deadlines are met, thereby building trust with the regulator that the organization has its “house in order.”
Course correcting compliance shortfalls can be a complex task. With the right third-party partner, financial institutions can not only enhance the fundamentals of their compliance programs, but also help mitigate future regulatory action and reputational effects in the long-term.