Editor’s note: The following is an excerpt of “The Upside of Compliance: Empowering Financial Institutions to Thrive.” This book focuses on the burgeoning field of technology aimed at compliance and regulation, otherwise known as regtech, and why more banks need to be exploring these new tools to stay competitive and compliant. The book was authored by Ncontracts’ VP of Compliance, Stephanie Lyon, and founder and CEO Michael Berman. Ncontracts develops compliance software for financial institutions.
Have you ever seen a competitor offering a new product or service or engaging in an interesting marketing campaign and wondered how they did it? Sometimes, those campaigns are non-compliant. Other times, the compliance officer of that institution was just more creative.
Compliance is a highly creative field if you are willing to roll up your sleeves and dive into the text of a regulation, its interpretation, and related guidance. New regulations rarely have a prescriptive approach that tells you exactly how to implement the regulation at your institution. Compliance officers must consider the institution’s risk appetite, the structure of the departments, the product and service mix, and many other moving parts.
Why are there so many terrible jokes associated with how compliance is the department where ideas go to die? The answer is that compliance officers constantly say “no” when asked if the institution can do something because they don’t have the time to find the gray areas in the regulations or find innovative ways to deliver solutions. The more time a compliance officer can muster to research and think, the better solutions and advice they can provide, which translates to giving their institution a competitive edge.
This was particularly evident during the COVID-19 pandemic. During the early stages of the pandemic, Congress and the regulatory agencies sprang into action to offer options to help consumers, including the Paycheck Protection Program (PPP), skip-a-pay offerings, and fee waivers. All these options had significant compliance complications. Suppose your compliance officer was occupied doing other things. In that case, they may not have been able to think creatively about the best approach for implementing a new loan program or responding to the needs of consumers, leaving your institution less able to manage the economic realities of the pandemic than peer institutions.
That’s not the only flexibility a compliance officer needs. Since the announcement of ChatGPT and other generative artificial intelligence in November 2022, the U.S. has undergone a new wave of technological innovation, empowering professionals to work more efficiently.
Compliance officers who are set in the old ways of researching, writing and accomplishing goals rarely look to technology to scale their efforts. They are also limited in their ability to help business units manage the compliance risk arising from leveraging new technology. Compliance officers must be adaptable and learn about new technology and its limitations and risks. This will help them scale their efforts, implement automation and change, and protect the institution from known risks around using AI, such as biased models.
Technology and innovation often outpace regulations and guidance, leading to ambiguity. Compliance officers must develop a tolerance for ambiguity, learning to operate in the gray and figure out what’s allowed, prohibited, and within tolerance without a lot of external guidance.
Compliance is part of the many risks that plague financial institutions. Successful compliance officers must learn to identify, assess, manage, and monitor compliance and interrelated risks. They need to help develop strategies to mitigate these risks and know that no strategy comes without risk. For that reason, compliance officers help others become informed risk-takers.