In an environment of increasing penalties and fines being slapped on banks at an increasing rate, Andrew Bailey, CEO of the Prudential Regulation Authority (PRA) says authorities and banks need to collaborate on fines and regulation globally, writes Anna Milne, so much so that a US bank might even consult the UK’s BBA on a fine it plans to impose and the consequences that may have.
He talked about having a much more systematic approach to penalties and to discussions around what the consequences are.
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"Banks need to pull together and make decisions on penalties and fines together to make sure the actions are having the right effect. Yes there has been an escalation of fines over recent years and we need to reach broader understanding of the impact these are having, now we have a track record," he said.
In terms of changing behaviour, do these harsh fines actually change behaviour because if not, what’s the point? If a bank feels it has been reprimanded as a one off, the chances are it squirms momentarily like a child scolded and returns to its fold to set about proceeding so as not to get caught the next time. That’s the general drift here. So what to do with those banks that really won’t up their game? Well, prison.
At a conference at the international institute of bankers early 2014 in Washington, attended by Sally Scutt, BBA’s deputy chief executive, the New York regulator gave a long explanation of why it takes the tough approach it does. Because despite having posed penalties, behaviours had not changed so the only way to get banks to operate to the correct standards and within the law and to change their behaviours is to look to putting individuals in prison to meet the objective. Needless to say it didn’t go down too well but it’s a simple, standard bottom line.
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By GlobalDataBanks should share more data. With each other and with themselves. And open up their confounded siloed data sets. There’s no excuse anymore. For example, the data needed for detecting financial crime is the same data needed to upscale products to customers. And the excuse banks have of customer data protection issues is just that- an excuse.
According to Marcus Wogart, head of global RBWM financial crime compliance at HSBC, it’s about convincing them it’s the right thing to do for meeting your customers’ needs because if you have a holistic view of the customers’ products and services, you can advise them better on their banking needs and once they see the value in your analysis of their data, they’ll be open to the value proposition of using their data across your jurisdiction so as to manage their fraud risk as well.
There was further talk of siloed data all over the world- that 80% of the world’s data is unstructured and, therefore untapped. This data needs to be utilised against fraud. 80%.
As for internal fraud, yes I would agree it probably is a good idea banks check names to flag up any history of the person they’re about to hire having defrauded that very bank. There is no reason why banks cannot access this information from their own silos very easily and no reason why they can’t address the legacy issues of sharing this data between silos.
Wogart says it’s a wider cultural issue of the top tier banking executives feeling thwarted by the fraud teams- that they are stopping them doing business when they should be seen as advising on how to do the right kind of business. Hard to believe banks need educating that everyone in the bank is actually working towards the same goal.
"It’s a culture banks need to understand, we call it three lines of defence, the front line, compliance and audit. For a long time people were very fearful of talking between the lines because the messenger of bad news gets shot and whistleblowers get hung out to dry. You need to change the culture towards transparency; praise transparency and encourage dialogue," Wogart said.
This is not to say that challenger banks have the edge in terms of a unified, holistic system that is also much cheaper- because what they lack is the corporate experience- and they have tried in some cases to hire it in, "but the true story is that when some of the challenger banks opened their doors, the Met were walking along the queue picking out known fraudsters intent on opening accounts on Day 1. So there are pros and cons each way. It’s about having the right culture and having the support from the executive. If you have those two things all the rest will fall into place in due course," he added.
The Met police want in on the data sharing act too. They’ve realised just how rich the data is that banks hold and figure it could help them trace a few dodgy trails. And vice versa.
Word of the day on whistleblowers: more, please, through an outsourced third party that does offer complete protection.
