ISSUE 24/SUMMER 2016 inCOMPLIANCE · ISSUE 24/SUMMER 2016 YOUR MAGAZINE FROM THE INTERNATIONAL...

Conference Special: Responsibility and

Response Ability

ISSUE 24/SUMMER 2016

YOUR MAGAZINE FROM THE INTERNATIONAL COMPLIANCE ASSOCIATION

inCOMPLIANCE ™

BREXIT: The INs and OUTs

Maximise your opportunity

How culture changed at37,000 feet

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£4.95 where sold separately

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New CPD Hot Topic Networking Events

We’re pleased to announce the launch of a new series of free face-to-face CPD events, starting with these sessions running in September, 6pm-8pm:

Guernsey - 5 SeptemberJersey - 6 SeptemberLondon - 12 SeptemberIsle of Man - 20 September

These events provide a great opportunity for you to network with other members as well as keep up to date on topical issues.

To pre-register for one of these events, email us at [email protected]. Further details will be on the ICA website shortly.

ICA Briefing SessionsThe best way to find out more about ICA qualifications and how they can enhance your career.

Hong Kong – 13 JulySingapore – 3 AugustGuernsey – 6 SeptemberJersey – 7 September London Open Day – 13 SeptemberIsle of Man – 21 September Dublin – 22 SeptemberMadrid – 27 September Sydney - 8 NovemberMelbourne - 10 November

To register for one of these sessions, visit www.int-comp.org/findoutmore

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Editorial Board

Kathryn Cearns, Independent Consultant, [email protected]

Jee Meng Chen, HSBC, [email protected]

Jacob Ghanty, K&L Gates LLP, [email protected]

Tom Salmond, Ernst & Young LLP, [email protected]

Irwin Spilka, Stonehage, [email protected]

David Symes, Compliance Recruitment, [email protected]

Rachel Waldren, ANZ, [email protected]

inCOMPLIANCE™Issue 24 Summer 2016

Publisher: International Compliance [email protected]

Editor: James [email protected]

Design: Thom Baker & Emma [email protected]

Production: Dorinda Gibbons & Sophy [email protected] [email protected]

Advertising Queries: Lily [email protected]

Chief Executive, International Compliance Association: Phil [email protected]

ICA Membership Enquiries: Dorinda Gibbons & Sophy [email protected]

ICA Qualification Enquiries: Michelle [email protected]

International Compliance Association CPD - 1 point

Advice to Readers

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Articles are published in good faith without responsibility on the part of the publishers or authors for loss occasioned to any person acting or refraining from action as a result of any views expressed therein. Opinions expressed in this publication should not be regarded as the official view of the ICA or as the personal views of the Editorial Board members of inCOMPLIANCE™.

All rights reserved in respect of all articles, drawings, photographs etc published in inCOMPLIANCE™ anywhere in the world. Reproduction or imitations of these are expressly forbidden without permission of the publishers.

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While the Senior Manager’s Regime is placing individual responsibility under the spotlight, the issue of corporate liability for employee transgressions is also on the rise (p.36). The theme of individual vs collective responsibility cut across many of the sessions at the ICA’s Annual Conference (p.18), not only with regards to responsibility for non-compliance, but also with regards to the development and maintenance of cultures.

It is a theme that also pervades this issue of inCOMPLIANCETM. See, for example, Phil Ryan’s thought-provoking piece on the aviation sector (p.29), which underwent a profound shift from a culture that lionised charismatic individual leaders towards a culture focused on the inclusion of diverse voices and collective decision-making through the removal of barriers to communication.

Just as culture tends to influence or constrain the behaviour of individuals within firms, it is of course itself shaped by individuals – in particular those holding key positions. Mentors and role models (p.13) can therefore become important to firms wishing to promote positive cultural change, as can employee training and empowerment (p.32).

With the above in mind, the issue of the individual vs the collective is increasingly one of both/and rather than either/or.

James Thomas

Talking responsibility James Thomas

Editor

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3 Editor’s commentThere is an increasing focus on both individual responsibility and

corporate liability, writes James Thomas

6 A note from Phil/ News from the ICAA roundup of the latest news

and events from the ICA

8 Industry NewsA summary of recent developments affecting

Financial Crime Prevention, GRC, AML and CDD professionals

10The INs and OUTSMartyn Oughton

considers the certainties and uncertainties surrounding Brexit and the implications of an “out” vote for regulation

13 Engaging the whole personBen Adams outlines the

importance of diversity and inclusion to Risk and Compliance functions

15 Maximise your opportunityHow can individuals

transitioning into Compliance from other disciplines improve their chances of securing a role? Chad Lawson offers some advice

18Responsibility and response ability

James Thomas reports from the ICA’s Annual Conference

21 In search of purposeKweku Adoboli urged ICA

conference delegates to address the cultural and organisational failings that pervade the sector

24 Celebrating students' success

The annual ICA Award Ceremony took place on 13 April 2016, celebrating the success of 100+ students.

26 Reading the signsMónica Ramírez Chimal

outlines some key detection methods for fraud and money laundering

Contents

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29 How culture changed at 37,000 feet

Phil Ryan explores one lever of culture change in the aviation industry and draws out the lessons that can be directly transferred to other industries

32 The cultural conundrumJennyfer Stanley

considers the challenge of improving organisational behaviour in the financial services sector

34 Breaking throughLance King describes

the career epiphany that saw him move from sales to compliance, and offers advice for those planning a similar move

36Proportionality, risk and effectivemess

James Thomas reports from the IMPLO Conference

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Have you thought about writing an article for inCOMPLIANCE™?Writing an article is a great opportunity to raise your profile within ICA and present a topic of relevance to your fellow members. Writing an article on anti-money laundering, compliance, financial crime or associated disciplines will also earn you valuable CPD!

Visit tinyurl.com/jvbu58r and download our document on Article writing tips and Blogging Best Practice to enhance your skills in this area and learn about structure, themes and writing style.

Please note: you don’t have to be an ICA Member to register your interest in submitting. Email us at [email protected] and remember to include your full name and your topic of interest.

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I have particularly enjoyed meeting a large number of ICA key stakeholders in the first six months of my role.

These include our international partners, the training and development team at ICT (our training partner), many of our graduates and – most important of all – a good number of our members. The feedback you have all given, whether face to face, via our member survey or during our Members’ Assembly in April, has really helped us to shape the strategy for ICA going forward.

For those of you who weren’t able to join us at the Members’ Assembly, please look out for the 15-minute highlights video, which will be available on the ICA website from July.

As a result of all this input, we have significantly expanded our portfolio of member benefits, which is due to launch in July, and we have also opened up membership to two new groups of people who we welcome for the first time – graduates of our Advanced Certificate level qualification and Affiliate level members, who may be currently studying, or considering whether to study, with us.

To a large extent, these two groups represent the “next generation” of middle and senior managers in the regulatory compliance and financial crime prevention space and we are delighted to be able to open up our professional community to both ends of the career spectrum.

Looking forward, we are now keen to get your feedback on any issue you’d like to flag up, including the evolution of inCOMPLIANCE™ magazine, and the new CPD portal and our other member benefits.

As always, you can contact me direct on these, or any other issues, via: [email protected] or 07738825751.

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A Note from PhilPhil Ryan ICA CEO

ICA Members’ Assembly 2016ICA members gathered in London on 12th April to attend our Annual Members’ Assembly and discuss the past 12 months with ICA Chairman Bill Howarth and CEO Phil Ryan.

Phil introduced details of some exciting new benefits for ICA members, which will be available from July, and talked about how the ICA member survey results had helped shape our thinking. Helen Langton, Managing Director of ICT, our training partner, gave an update on the global reach of ICA qualifications, increased opportunities for face-to-face training and new qualifications on the horizon.

Guest speaker Barbara Neiger, Compliance & Corruption Consultant from Compliance Management Systems, shared her thoughts on the "Psychology of Compliance".

You can see the PowerPoint presentations from the day on the ICA News page in the Member’s Area of the ICA website. Videos from a number of the key presentations will be available to members from July.

Best wishes

Phil

inCOMPLIANCE™ – The Future!Your magazine is changing! Members will now receive six editions each year instead of four and, as well as the usual insightful commentary, inCOMPLIANCE™ will include:

• Industry news updates• Regular feature on culture & ethics• Career development advice• What’s new at your association?• Jurisdiction spotlight

Coming up in the September Issue• September will be the first interactive inCOMPLIANCE™• The ICA Survey results in full

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NEWS FROM THE ICA

International Partners MeetingDuring two days of ICA events in April, we also held a meeting for our global partners and stakeholders to discuss the future of ICA and how we can further improve ICA member services in their jurisdictions.

"It was very good, with the Chair and CEO sharing the structure of the organisation and their vision. Participation was also encouraged so I felt we were part of the process of directing the future." Yvette Cheak

"This meeting is an important event where discussions are held on ICA’s achievements, future plans and activities for each respective region in the world with a clear focus on how ICA can add value to the members. It is also an avenue where feedback is gathered from the Advisory Committee members on the planned efforts of ICA." V. Maslamani

2017 ICA Events – Dates for your Diary 5 September 2016 ICA Networking CPD Event, Guernsey

6 September 2016 ICA Networking CPD Event, Jersey

12 September 2016 ICA Networking CPD Event, London

20 September 2016 ICA Networking CPD Event, Isle of Man

17 November 2016 ICA Award Ceremony, London

28 March 2017 ICA Annual Members’ Assembly, London

29 March 2017 ICA’s 9th Annual Conference, London

29 March 2017 ICA Award Ceremony, London

New Levels of Membership – More Options for EveryoneAs many of you know, in order to become a Professional Member of the ICA, you have had to complete an ICA Diploma or have satisfied stringent criteria to apply through the experienced practitioner route.

For all of you who are not there yet – we have some great news! With effect from July 1, we are opening up membership to all levels

of qualifications as well as to those who are not studying with us. More information can be found on page 39 and on the ICA website.

If you are thinking about your next ICA qualification, come along to the next sessions to find out more. (see page 2 for the dates and locations)

ICA Member SurveyThe Survey said…..? In February 2016, we commissioned Ashridge Communications to survey our members, to gather your views on ICA and your priorities for membership services. Some of the results of the survey were revealed at our Annual Members’ Assembly in April and you can view these on the ICA News page in the Member’s Area of the ICA website. In July we will be adding a video of the highlights from this session to the website too.

A brief review can be found on page 17 with the full results and our response featuring in the September edition of inCOMPLIANCE™.

CPD Hot Topic EventsWe are pleased to announce the launch of a new series of face-to-face continuing professional development (CPD) events. Beginning in the UK and Channel Islands in September 2016, these events will give you the chance to gain valuable CPD and to network with other members. Dates are listed below and please see the advert on page 2. More information will appear on the website shortly.

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INDUSTRY NEWS

Industry bodies launch new cybersecurity principles The European Banking Federation (EBF), the Global Financial Markets Association (GFMA) and the International Swaps and Derivatives Association (ISDA) have announced that they have agreed a new set of common principles to encourage effective global policy measures on cybersecurity, data and technology. Elsewhere it was reported that Talk Talk profits have halved in the wake of its recent data security breach.

UK: Corporate liability under the spotlight Criminal liability for corporations that fail to prevent financial crimes committed by their employees or representatives has been high on the UK agenda. In April, HMRC began consulting on plans to introduce a new criminal offence for corporations whose staff aid tax evasion, unless they can demonstrate that they took steps to prevent such practices (for further information, see IMPLO Conference Report, pp.36-38 of this issue). The consultation is open until 11 July.

Later in April, the first successful conviction under section 7 of the Bribery Act 2010 was announced, as Sweett Group plc was ordered to pay £2.25m after pleading guilty to a failure to prevent bribery.

Ahead of the anti-corruption summit held on 12 May David Cameron announced plans to extend the section 7 corporate offence from bribery to cover money laundering, with consultation to be held this summer.

See more: https://www.gov.uk/government/consultations/tackling-tax-evasion-a-new-corporate-offence-of-failure-to-prevent-the-criminal-facilitation-of-tax-evasion

UK AML Plan publishedThe UK Government’s Action Plan for anti-money laundering and counter-terrorist finance was published on 21 April. The plan’s proposals include measures to target MPs, councillors and civil servants suspected of corruption, through the establishment of an offence of "illicit enrichment". In such cases, civil courts would be granted powers to impose "unexplained wealth orders".

The action plan called for industry views on proposals to reform the SARs regime, and for evidence to review the UK’s Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) Supervisory Regime. The consultation closed as this issue of inCOMPLIANCE went to press.

https://www.gov.uk/government/publications/action-plan-for-anti-money-laundering-and-counter-terrorist-finance

Emissions scandal: VW not aloneFollowing in the wake of the VW emissions scandal, Mitsubishi has admitted cheating on fuel economy tests for 25 years on some of its own brand and Nissan-branded cars. The announcement was followed by the resignation of President of Mitsubishi Motors Corp, Tetsuro Aikawa, while the company’s share price fell to its lowest level in over a decade. Meanwhile, Nissan and Suzuki admitted to manipulating emissions data on cars sold in Japan, while General Motors’ Opel unit and Fiat Chrysler are also under suspicion of similar manipulation.

Top US AML official to join HSBC?The Director of the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN), Jennifer Shasky Calvery, has resigned her position, reportedly to take up a senior compliance role at HSBC.

China: AML risk on the rise? China’s greater integration into global markets is increasing ML and CFT risk, according to a senior official at the People’s Bank of China. “Risks of money laundering and terrorist financing are further increasing in line with cross-border uses of the yuan, the rise of internet financing and the opening of capital accounts,” said Hao Jinghua, Deputy Director at the Anti-money Laundering Bureau at the Central Bank.

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INDUSTRY NEWS

Overhaul of EU data protection laws The EU General Data Protection Regulation (GDPR) “represents a huge threat to business continuity for all financial services organisations” according to Henley Business School. Financial services organisations face fines of up to 4% of global turnover – or €20m – for failure to comply with GDPR requirements regarding the collection, use, transfer and storage of customers’ and clients’ personal data.

UK: OFSI established to “support financial sanctions implementation”A new body has been established within the Treasury, to support financial sanctions implementation. The Office of Financial Sanctions Implementation (OFSI) will “provide a high-quality service to the private sector, working closely with law enforcement to help ensure that financial sanctions are properly understood, implemented and enforced.”

New penalties for sanctions breaches are also being legislated for in the Policing and Crime Bill. These include monetary penalties and an increase in the maximum custodial sentence for breaching financial sanctions.

https://www.gov.uk/government/news/new-body-to-support-financial-sanctions-implementation-launched

UK: Bank Mellat successfully challenges Iran sanctions regimeThe first successful challenge to the Iran sanctions regime has been secured by Bank Mellat, following a ruling by the English Court of Appeal in the case of Bank Mellat vs HM Treasury.

UK: FCA launches “Regulatory Sandbox”The FCA’s Regulatory Sandbox opened to applications from 9 May 2016. It will provide “a ‘safe space’ in which businesses can test innovative products, services, business models and delivery mechanisms in a live environment without immediately incurring all the normal regulatory consequences”.

Brazil: corruption crackdownBrazil’s crackdown on corruption by politicians, officials and business leaders resulted in the repatriation of $125m (£86m) of dirty money last year, according to reports. This is eight times more than what the sum recovered over the previous decade.

BSI facing criminal investigation over links to 1MDB Swiss bank BSI is facing criminal proceedings from the The Office of the Attorney General of Switzerland, over links to corruption allegations against Malaysia's 1MDB fund. Moreover, The Monetary Authority of Singapore (MAS) has withdrawn the bank’s status as a merchant bank. BSI chief executive Stefano Coduri has resigned in the wake of these developments.

New OECD Corruption toolkit launchedThe OECD has launched a new “corruption toolkit”, for use by governments around the world. The kit is aimed specifically at the mining, oil and gas sector, and provides “evidence-based analysis to better understand how corruption works”.

The toolkit is “the first analytical tool that provides evidence-based analysis to understand better how corruption… works throughout the extractive - mining, oil and gas - value chain. This includes the process from deciding to extract and the awarding of rights down through revenue collection, management and spending”http://www.oecd.org/dev/Corruption-in-the-extractive-value-chain.pdf

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The INs and

OUTsMartyn Oughton considers the certainties

and uncertainties surrounding Brexit and the implications of an “out” vote for regulation

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BREXIT

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BREXIT

One thing is for certain. On 23 June 2016, the people of Great Britain get to make a very simple choice. Should the country stay in the European Union (EU),

or should it leave? That’s it – no conditions, no halfway house. It’s either stay or go.

So when everyone wakes up on the morning of 24 June, the choice will have been made, as the result of the referendum becomes known. The politicians will know which way the voting public has told them to act – a very certain thing indeed.

But like many aspects of political life, the choice will not be that easy or quick to implement in practice. If the vote is to leave, the government will have to work very hard to secure a deal with the EU going forward that protects Britain’s trade interests as closely as possible.

This article considers the consequences of a “leave” vote for financial services regulation. If it transpires that the vote is to leave, read carefully, because the scenario in this article could become a reality. If the vote is to stay, then think of it as “what might have been”.

The immediate effectBrexit (the colloquial term for Britain leaving the EU) is a very simple concept in theory. If the referendum produces a majority vote to leave, then that’s it – the exit must happen. Granted there are some processes that need to take place; for example, there would need to be new legislation to enable the exit to happen, and certain legislation would need to be repealed (such as the European Communities Act 1972, which gave effect to EU law in the first place). In practice, however, the will of the people will prevail and Brexit will happen.

Once a “leave” vote has been delivered, the government then has the unenviable task of trying to make a withdrawal from the EU work effectively. And this is where the realisation sets in that in the very short term nothing different will happen, at least not as far as the regulatory and legislative environment is concerned.

Britain will remain a member of the EU for at least two years, because this is the minimum period of notice that needs to be served to the European Council in order to leave the Union. But, in practice, a withdrawal may well take much longer, because the government is unlikely to commit to a leaving date without ensuring that suitable trade agreements are negotiated with the remaining EU member states (assuming that Britain does not elect to become a member of the European Economic Area [EEA], which looks an unlikely option). So we could be looking at five, seven or

even ten years before the button is finally pushed and Britain is independent of the EU.

What does this mean for the regulatory environment in the meantime? In reality, very little or even nothing. Firstly, whilst Britain technically remains a member of the EU it is legally bound to implement the laws of the EU that relate to it. The list of those laws that Britain has had to implement so far is extensive – think of MiFID, Solvency II, the Capital Requirements Directive, EMIR and the Consolidated Life Directives to name but a few of the laws that have been directly translated into the UK regulators’ rulebooks. In addition to which, there are more in the pipeline, such as the updated MiFID, the new Data Protection Regulations, the introduction of the rules around Key Information Documents for Packaged Retail and Insurance-Based Investment Products etc, not forgetting of course the long-awaited Fourth Money Laundering Directive. In the short term, even though the commitment will have been made to the EU to leave, from a purely technical point of view, Britain will still be bound to accept the laws of the EU as they apply to other member states. So, while Britain sorts out its future relationship with the EU, we will probably have to get used to the status quo for the immediate future at least.

This means that, even if things change in the market landscape (for example, if firms and their clients decide to restructure their operations away from the UK so that they retain the benefits of being in the EU), the situation as far as regulation is concerned will remain the same. Firms from the EU will still have the right to operate in the UK on a Freedom of Services basis, and the opposite will be true of UK firms wishing to operate in other EU states. And at the same time, UK regulators will continue along their path of both implementing EU laws directly, and of taking the core elements of EU law and translating them into rules, guidance or best practice for the purpose of their rulebooks.

Britain will remain a memberof the EU for at least twoyears, because this is theminimum period of noticethat needs to be served to theEuropean Council in order toleave the Union. In practice,a withdrawal may well takemuch longer

Wind the clock forwardSo, if we wind the clock forward and look to the point at which Britain finally exits the EU, what happens then? This is when the real uncertainty starts to bite.

Let’s start with the things that we do know. Theoretically, Britain would no longer be obliged to abide by EU legislation that is passed from that point forward (unless it becomes an EEA member). However, the question still remains as to whether UK regulators would want to look at EU

In Brief

• The effects of Brexit on regulation could be limited in the short term

• The relationship between Britain and the remaining EU states is the primary factor that would drive the regulatory agenda post-Brexit

• A vote to leave the EU could undermine the UK’s attractiveness as a financial centre in the longer term

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legislation and introduce best practice derived from that legislation into their own environment.

There would also be the issue of whether Britain wishes to become considered as a Third Country under EU laws which would mean it would obtain equivalence status for the purpose of applying certain EU legislation in the future. The problem arises if Britain does not wish to adopt certain elements of EU legislation, in which case there is the risk of losing equivalence status. This is exacerbated because Britain would no longer be a member of the relevant European Supervisory Authorities.

At the same time, Britain and its regulators could theoretically be free to start repealing some of the domestic legislation and rules that were introduced as a result of EU Directives to begin with. However, there is a real chance that the government may feel that this legislation has been largely beneficial for the country and for the regulation of financial services business in particular, and may decide that actually the rulebook should be left well alone.

The bigger pictureThere are other issues that would come into play in making these decisions though. Britain would have to work very hard to retain its attractiveness as a centre for financial services post-Brexit. Foreign firms looking to set up branches in the UK would have to consider the benefits of doing so against relocating inside the EU. Likewise, those UK firms looking to do business abroad would need to be supported, in particular in their dealings with EU states, if the strength and robustness of the UK’s financial sector were to continue. Ultimately, this is the agenda that would drive regulatory developments forward in the post-Brexit world, rather than what many people may conclude, that the UK will regulate to simply protect and encourage businesses in the UK.

This is clearly a serious issue. Reports are already being produced, predicting a significant impact on the size of the financial services sector post-Brexit. One in particular, produced by PricewaterhouseCoopers, reckons that the sector’s contribution to the UK economy could reduce by as much as £12bn by 2020, which could translate to 100,000 jobs being put at risk.

The answer is… there is no answerIf Brexit happens there will be changes in the regulatory landscape, no doubt about it. But exactly what these are and when they will take place is simply impossible to call at the moment. The biggest single dependency is what form the relationship between Britain and the remaining EU states will take once Brexit is complete; and this is the primary factor that will drive the regulatory agenda in future.

The other problem is that the regulatory environment has not developed in isolation, but rather to support the overarching objectives of the EU from a trade perspective. Take any number of EU-led developments, look down beneath the rules and you will see that these are designed to achieve harmonisation across states, encourage cross-border movement of services and improve standards overall across the Union. If the UK wishes to buy into these values in future from outside the EU, but still wishes to participate as

Britain would have to work very hard to retain its attractiveness as a centre for financial services post-Brexit. Ultimately, this is the agenda that would drive regulatory developments forward in the post-Brexit world, rather than what many people may conclude, that the UK will regulate to simply protect andencourage businesses in the UKfully as possible in the EU marketplace, then the regulatory environment in the UK may not actually change that radically, at least not in the short to medium term.

In any event, overall UK policy intentions will be the leading indicator, with regulators and their rules dancing to whatever tune is playing in a post-Brexit Europe.

Martyn Oughton is a compliance professional and a writer. He is also an examiner for the ICA.

Britain and its regulators could theoretically be free to start repealing some of the domestic legislation and rules that were introduced as a result of EU Directives. However, there is a real chance that the government may feel that this legislation has been largely beneficial for the country and for the regulation of financial servicesbusiness in particular, andmay decide that actually the rulebook should be left well alone

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CAREER CORNER

The way in which employers approach the issue of diversity is evolving. They are increasingly

concerned with understanding and harnessing the tangible value that a diverse workforce can offer to the entire organisation, as well as to individual business units. Moreover, a greater appreciation of the value of diversity to the business brings with it a realisation that diversity alone is not enough, but that inclusion is an essential complementary ingredient.

A recent panel event hosted by Broadgate Search, in partnership with Barclays, sought to explore these themes, focusing on the issue of Diversity and Inclusion within Risk and Compliance Functions. This article outlines some of the key messages from the event, which was attended by senior figures from across the financial sector, including ICA CEO Phil Ryan. Speakers included both regulators and those tasked with implementing policy in the field, and some powerful arguments were made regarding the value of mentoring, role models, inclusion policies and diversity in recruitment policy. Both the significance and strengths of positive policy-making were explored, as well as the challenges associated with such policies and their

implementation.

Fostering an inclusive environmentMike Roemer, Global Head of Compliance at Barclays, opened the event by video link with the suggestion that the value of diversity and inclusion lies in its ability to allow “the whole person” to engage at work. Jenny Barrow, Head of Corporate Responsibility at the Financial Conduct Authority (FCA) picked up the theme. She argued that, as diversity is becoming increasingly well established within organisations, the issue of inclusion is now of paramount importance. Organisations should ask themselves the question “What are we doing to ensure that everyone is equipped to succeed?” The implication is that inclusion goes beyond who you employ, to the environment and atmosphere in which those people work. She placed particular emphasis on the power of role models, who can achieve more, she said, than “a raft of policy documents”.

Laura Padovani, Head of GCS at Barclays, echoed these views, maintaining that: “Diversity is key, but inclusion is more fundamental.” She suggested that companies need to nurture creativity so that the individual feels integrated. In order to do that, the right environment is vital, she added. She felt particularly strongly about the role of women as role models in the workplace and praised her own company for its commitment to diversity, citing the fact that 51% of its workforce is female.

Alex Andreadis, Managing Director Investment Banking, Treasury and Non-core Compliance, Barclays,

was in agreement with the previous speakers. He illustrated his argument on the importance of mentoring with a personal anecdote: early in his career he was mentored by Indian lady who helped him immeasurably by encouraging him to see his role through the prism of diversity. He suggested that initiatives such as the HeForShe campaign (supported by Barclays) can also help to foster greater diversity and inclusion. HeForShe is encouraging a billion men to sign up to the advancement of women’s rights, and initiatives attached to the campaign are making a real difference in recruitment and promotion policies, he suggested.

The entry doorLisa Hines, Global Head of CIB at Barclays, emphasised that the bank is keen to avoid packaging people into a “corporate mould”. She sees the recruitment process as crucial to achieving this; being “the entry door” by which employers can “control the diversity within their organisation.” Alternative methods of recruitment can help improve diversity, she argued. For example, research has shown that removing personal data from CVs can influence who an organisation considers for interview, as there is a natural tendency for those sifting through CVs to select individuals with whom they share something in common. Providing the interview panel with the candidates’ work experience, minus personal details, can and does widen the interview pool, she said. This, in turn, will have an effect over the

Engaging the whole person

Ben Adams outlines the importance of diversity and inclusion to Risk and Compliance functions

Companies need to nurture creativity so that the individual feels integrated

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CAREER CORNER

long term on diversity and inclusion inside the organisation. Barclays is currently piloting these ideas in a new recruitment initiative.

She also touched on the success of Barclays’ diversity and inclusion policies with regards to ex-military personnel, whose skill set is now being recognised within the banking sector. She explained that former members of the military are being successfully employed with a view to moving the bank to a new level in electronic security and protection against the “next rogue trader”. Elaborating on this, Ashley Lawrence, one of the founders of Broadgate Search, spoke with great pride of the achievements of the social enterprise, Ex-Military Careers/Foundation, which he co-founded in 2012. The charity is successfully mentoring ex-service personnel and helping them to make a positive transition into civilian life.

Inclusion and integrationThe inclusion agenda is not without its

challenges, and the evening concluded with a lively Q and A session that explored some of the difficulties it involves, including the issue of how to integrate different ages successfully at work. Alex Andreadis acknowledged that this is a subject that requires some attention, arguing that, in particular, managing someone who is older than you demands a different skill set. It is vital to adapt your style and how you lead the team in order to get the most out of an individual, he said. But, he argued, the key to innovation and high performance involves tapping the potential of younger members and marrying that to age and experience.

With the growing importance of diversity and inclusion, it is clear that firms have much to learn – and to gain – by engaging fully with these issues. While achieving diversity and inclusion is not straightforward, it offers exciting potential gains in terms of employee performance, retention, innovation and shared learning. We aim to hold similar panel forum events in the future, providing the opportunity

for experts and practitioners in different organisations to share and evaluate their separate experiences and, we hope, come away with fresh perspectives. As Phil Ryan suggested: "Ben and the team did a great job of teasing out a number of crucial issues that will help to take Compliance, as a profession, to the next level. That is why ICA chose them as one of our ICA career zone partners."

Ben Adams is a Director at Broadgate Search, a specialist recruitment company focused

on placing governance professionals at a mid to senior level. It operates from offices in London and Dublin and provides recruitment services with a global reach. To watch the edited video from the event please visit: http://www.broadgatesearch.com/events/diversity-within-risk-and-compliance/

LONDON:Tel: +44 (0) 203 817 9757

DUBLIN:Tel: +353 (1) 6087748

Please e-mail or call us to find out more:

Broadgate Search are a specialist recruitment company who concentrate on placing governance professionals at a mid to senior level. This would include all areas of compliance, risk and audit. We work from our offices in London and Dublin, operating globally.

We partner with clients to pair world-leading talent with world-leading companies and make the whole process seamless – from introduction to integration.

Together, we bring 30 years of industry leading experience to the table – from retained to contingent searches, to contracted and interim solutions.

Our specialist knowledge, networks, and diverse set of skills means we consistently deliver exceptional results – with no exceptions.

CORPORATE GOVERNANCE RECRUITMENT

www.broadgatesearch.com [email protected]

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CAREER CORNER

The job market for Compliance professionals continues to be busy and skills shortages still exist across many areas of the industry. This trend has meant that many

people from outside the industry have endeavoured to re-direct their careers into Compliance (see pp.34-35 of this issue). Whilst there continue to be opportunities to transition into Compliance, if you do not have experience within the discipline it is important to maximise your opportunity to be considered as employers are still being selective when hiring.

Below are some answers to a few common questions, which may be of use to those wishing to make the transition into Compliance.

What are hiring managers looking for?Employers are always looking for a direct match in skills and experience when hiring in Compliance. However, the challenge that the industry has faced in recent years has been that the demand for Compliance professionals has outweighed the

Maximise your opportunity

How can individuals transitioning into Compliance from other disciplines improve their chances of securing a role?

Chad Lawson offers some advice

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CAREER CORNER

supply, resulting in many hiring managers looking for candidates with skills and experience outside of Compliance who can make the transition into the discipline. If a hiring manager is exploring these alternative talent streams, then they will look to identify transferrable skills and relevant Compliance qualifications.

Being able to demonstrate the ability to transition through relevant skills is important, and being able to demonstrate a commitment to the transition is looked on favourably by hiring managers. This can be evidenced through further qualifications or work experience that you can put on your CV, which will show that, whilst you have not worked in the discipline before, you are serious about focussing your career in that direction.

What skills are transferrable?Being able to highlight skills that are relevant to the position you are applying for will enhance your application and improve your chances of being considered. The field of Compliance is broad, so suitability of skills will depend on the type of role that you are considering. However, some key skills that are commonly required are:

• Analytical skills – the ability to display experience in processing complex information and translating this to various stakeholders

• Communication skills – as the role of Compliance has become a lot more of a “business partner” function, so your ability to engage with various stakeholders at a range of levels will be very important

• Investigation skills – representing skills in challenging information to get to the real result

• Attention to detail – showing that you have an eye for detail is important as any control errors could have significant consequences.

How can I improve my chances of getting an interview?Your CV is your career passport, so it is vital that you review its structure, content and style before sending it. The CV should be tailored to suit the role that you are applying for, ensuring that the experience and skills that are suitable for that specific role are prominent. A short

covering letter sent as a separate attachment can be used to outline your motivations and commitment to a career transition.

Education and qualifications that are relevant to the role you are applying for further enhance the suitability of your CV. Relevant Compliance qualifications can make your CV stand out amongst others, so clearly outlining these at the top of the CV will help to strengthen your application.

Following up on your application with a call to the hiring manager is always advised. If you do not have an exact match of experience for the requirements of the vacancy, then you need to be proactive in ensuring that your profile has been reviewed and highlight the relevance of your application. This approach will also show that you are committed to a move into the industry and can differentiate you from the other applicants.

What type of questions should I expect in interviews?Being able to demonstrate key transferrable skills is important and is best done by providing specific examples that outline how you have used these skills in your previous roles. Some typical questions that you should expect are:

• How do you deal with difficult stakeholders?• When have you had to make a judgement on a situation

and what process did you go through to come to this judgement?

• Give an example of a time when you have identified an error in a process and what remedial actions did you put in place to resolve it.

• Provide an example of where you have used your investigation skills to get a different result to what was initially suggested

• Give an example of a control mechanism you have put in place on a process that has ensured accuracy in the result.

Should you be transitioning into Compliance from another industry, you will likely be asked why you are looking to make this move, so be prepared to answer this question through identifying the suitability of the industry to your experience and career aspirations.

Chad Lawson is Associate Director at Robert Walters

Being able to demonstrate the ability to transition through relevant skills is important, and being able to demonstrate a commitment to the transition is looked on favourably by hiring managers. This can be evidenced through further qualifications or work experience

Following up on your application with a call to the hiring manager is always advised

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ICA emailed all our members to ask a number of questions about your current views of the membership offer and to identify your "wish list" for future member benefits. We were really pleased with the response rate and your constructive suggestions, which were further complemented by the discussions at the Members’ Assembly in April.

In the next issue, we will give you a more detailed breakdown of the feedback and our response. However, I wanted to take this opportunity to thank you for taking the time to give us your views and to let you know the headline findings.

We asked you to rate which of the current range of benefits were the most important things that you need from your professional body. The statement that resonated with most people was: Membership of the ICA affords me professional status and credibility. 44% of respondents rated this 9/10 or 10/10.

A high proportion of members also agreed with the statements: The ICA communicated with me effectively and I understood how to access the tools and resources I need from the website.

Next we asked you which of the list of current benefits you were aware of and how much you use and value them

In Table 1 you can see the top responses, the percentages of respondents who were aware of these benefits and the score out of 10 (in the final column) they awarded.

When we asked what would be the most important things that ICA can do for you going forward, you listed providing knowledge, tools and resources that will help you do your job more effectively; and a way of measuring and logging your CPD. A large number also added that online and-face to-face opportunities to network and learn were of equal importance.

As we move through the summer, you will discover that we have invested heavily in our new CPD portal, career zone and a series of free international events to address these priorities.

Additionally, you asked ICA to continue to raise the profile of our qualifications and certifications with employers and regulators, primarily so that those of you who have completed a Diploma or Professional Postgraduate Diploma can have your efforts recognised as a career-enhancing differentiator.

Finally, we asked members to identify ways in which they would be willing to contribute to developing ICA’s profile and mission. An encouraging number of you volunteered and we will be in touch to take up your offer.

I have reproduced the visual I used at the Members’ Assembly (Table 2) to describe the various ways in which you can help, so that anybody else who might want to take part can send us their details.

Thanks to your feedback, we now have a concrete road map to develop the ICA member benefits offer and I will share much more with you over the coming months. As I mentioned, I will also share even more of the survey insights in September. For now, if you have any questions, or perhaps would like to get further involved, then email us at [email protected]

Phil RyanICA CEO

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Table 1: Q: We have listed below some key benefits and resources provided by the ICA. Of which of these

are you aware?/When did you last use or access these benefits and services?/To what degree do you

personally value these benefits and services?

Resource/benefit/service Awareness

Use (any time)

Value (mean score out of 10)

E-mail alerts 69% 94% 7.26

inCOMPLIANCETM 64% 88% 8.03

Discounts on ICA qualifications and events

60% 90% 7.75

ICA Newsletter 57% 41% 7.30

ICA News 53% 95% 7.54

Professional designation

50% 80% 8.61

Linkedin group 45% 76% 6.88

Members Directory 44% 74% 6.65

Discounts at relevant industry events world wide

35% 90% 7.75

Knowledge Hub 31% 91% 7.19

Networking 21% 28% 7.04

None of these 5%

Table 2: Q: Would you be interested in being involved in any of the following

Yes Possibly

Guest speaker at an ICA event 50 119

ICA Examiner 81 150

Record a CPD webinar 35 94

Write for the ICA Blog 47 161

Write an article for inCOMPLIANCETM 64 176

Write a white paper 36 127

Your views heard

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ICA ANNUAL CONFERENCE

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As the regulatory agenda has shifted towards conduct and accountability, the ICA’s Annual Conference – Responsibility and Response Ability – focused on

the challenges facing both firms and individuals, and their reaction to these. Opening the conference by video, David Sayer, KPMG, outlined the context in which individuals and firms must now operate. The conduct and compliance agenda is taking over from the prudential agenda, he said, and the Senior Managers Regime (SMR) means that, although decisions are made in the moment, “every major failure will be judged with 20:20 hindsight”.

ICA CEO, Phil Ryan, expanded upon the change witnessed within the sector, pointing out that, since the year 2000, there has been a significant shift in the importance and status of Compliance and Financial Crime specialists. Bill Howarth, ICA Chairman and Life President, concurred, adding that, while MLROs and Compliance Officers are today more independent and empowered than ever, “with that change in status comes additional responsibilities and accountabilities”, a sentiment that set the tone for the rest of the day.

Financial crime trendsIn the opening session, Nigel Kirby, National Crime Agency (NCA), described current trends and the resulting risks for financial crime professionals, and emphasised the importance of co-operation between law enforcement and the financial sector.

He explained the focus and outcomes to date of the Joint Money Laundering Intelligence Taskforce (JMLIT) and welcomed its collaborative approach, with banks, HMRC,

the City of London Police, the Serious Fraud Office and the NCA itself all sharing information together. Similarly, he outlined his confidence in the AML Action Plan (published shortly after the conference), stating that the co-operation between industry and the authorities in developing the plan is “something I haven’t seen in my 30 years of experience”. He assured delegates that “the proposals we have put forth are proposals that we believe will work and make a difference”.

He suggested that there are areas for improvement in the “balance of risk and responsibility between ourselves and the regulated sector”. For example, he said, the UK’s regime for suspicious activity reports (SARs) “artificially separates the regulated sector from law enforcement” with firms focusing on compliance and law enforcement focusing on prosecutions. “What happened to the single focus on preventing money laundering?” he asked. He said that the NCA had made some “profound” proposals for overhauling the SARs regime, for example around the area of “consent”. Instead of the current approach, he suggested, we should move to a more collaborative system in which industry and the NCA “jointly consider where the greatest threat is”.

Responsibility and Response Ability

James Thomas reports from the ICA’s Annual Conference

What happened to the single focus on preventing money laundering? – Kirby

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When asked how industry can reconcile this call for greater collaboration with the more adversarial regulatory relationship implied by the SMR, Mr Kirby suggested that “if we can get the compliance right – so there isn’t compliance for compliance’s sake – then the industry could spend more

time working on real threats of money laundering with us. That’s what I aspire to”.

Speaking in the immediate aftermath of the Panama Papers he pointed out that the UK’s public register for beneficial ownership “is a step forward”. With regards to the announcement of an HMRC-NCA joint taskforce, he called on the audience to have “some sense of realistic ambition around this”. “We as law enforcement deal with criminal matters, where people have broken the law,” he explained. “The moral and ethical questions are for the government and the public. And they will play out for many months.”

When asked about the quality of cross border co-operation and information sharing, he suggested that “we could better join-up the global law enforcement response to major bribery and corruption cases” but also argued that “the information that we are sharing at the moment and the alerts that are now being put into your industry through the BBA alerts system absolutely pick up the international dimension.”

The Senior Managers RegimeRichard Crannis, Duff and Phelps, explained the implications of the SMR, highlighting areas in which

The view from the panel

A series of breakout sessions allowed delegates to share experiences regarding sanctions risk, CDD, conduct risk and CFT. The panel session that concluded the conference provided a means of responding to the themes developed in these breakouts.

On the topic of sanctions, the panel was asked how firms can deal with the increasingly complicated nature of sanctions screening, and how can they balance that against commercial pressures. Responding, Steve Foster, Lloyds Banking Group, explained how Lloyds was meeting the challenge of sectoral sanctions and the spiking in alerts that this had introduced, by speaking closely with its screening suppliers and tuning its systems. A second challenge he described was in the area of ownership structures and CDD. “We are putting a lot more pressure on our front office,” he explained. Achieving compliance with the sanctions regime amidst resource pressures was “a question of constant dialogue with our operations team.”

On the subject of CDD, the panel was asked “how do we get proportionality right in CDD?” Nigel Coles, Exiger, suggested that it is important to get DD right the first time. “If DD is undertaken correctly in the first instance it assists so much else that you have to do in AML and Compliance,” he explained, “because it means that your alert adjudication is more sophisticated, and it’s more likely that you can judge whether an alert is suspicious. So while it may seem expensive in the first instance, you get what you pay for.” This, in turn, feeds into the area of de-risking. “If the DD is effective you can make more valuable judgements about whether you should get rid of a client. So much de-risking has been done as a group exercise, but that can’t be a very effective commercial judgement because much of that which is deemed ‘risky’ is actually probably perfectly profitable good business if it’s managed correctly.” David Moland, Arbuthnot Latham, felt that little will change until the regulator changes. “A lot of the DD and de-risking work that is carried out within firms is a direct result of what our regulator is saying, and what happens when they come and visit firms.”

With regards to conduct risk, the question was “Do we understand in full the elements of the journey to achieving ‘good conduct’? Sally Scutt, ICA Strategic Advisor, suggested that: “Conduct is about what business you do, who your clients are, and whether your employees attain standards of behaviour that put the clients first and ensure that banks exist to serve customers and society.” She explained that the conduct agenda demands a focus not only on compliance with the law, but compliance with the spirit of the law. She concluded: “I’m a believer that it is definitely the role of the board to set the tone and the standards [required] and to reiterate those, and to make sure that that flows through all the way” while the panel added that “tone from the middle” can be equally important.

Finally, the panel was asked what distinguishing features could be used to identify a terrorist from an ordinary customer? The scale of this challenge was highlighted by Steve Rickard, NTFIU, who pointed out that “the knives that the murderers of Lee Rigby bought were just over £20 from Argos.” However, he continued, firms are sitting on a huge amount of information and “if you’ve got a hunch, generally you are probably correct”. The notion of trusting ones intuition and keeping ones eye open perhaps encapsulated the broader themes reiterated throughout the day.

There has been a significant shift in the importance and status of Compliance and Financial Crime specialists – Ryan

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firms have struggled, and offering suggestions about how to approach the regime. He asked how many in the audience currently had a statement about culture in their firms, to which several showed their hands. The challenge, he suggested, is “what does that statement mean?” because such a statement is “the bedrock of how SMR works”.

He suggested that accountability is central to embracing and embedding SMR. Organisations that are unable to define accountability will struggle. The main challenges around SMR concern policy, processes and people, he continued, citing the VW emissions scandal as a prime example of failings in these areas.

The onus is very much on firms to get SMR right. In response to a question from the floor, he confirmed that “the certification aspect is an internal process, and the regulators are relying on the firm to map out the regulations that apply to them and how they translate that to those people subject to the certification regime.” HR, compliance, risk and senior management should all be involved in that process.

Finally, he expressed concerned that “SMR might become another box-ticking exercise”. In order to avoid this, firms must get “under the bonnet” and understand SMR, through a continuous process of mapping or defining certified roles across the firm; setting objectives; implementing SMR with supporting documentation; and conducting ongoing assessment of captured individuals.

Skilled personsThe next session described the pitfalls of s166 reviews, and suggested best practice with regards to managing them. Daren Allen, Berwin Leighton Paisner, emphasised the importance of selecting the right firm to undertake s166s, having witnessed many examples of skilled persons being appointed in areas in which they are not suitably qualified. Similarly, he cautioned against appointing firms in which all of the expertise resides in a single individual. He advised firms to:

• Choose the skilled person you want, where possible• Obtain proposals from several firms• Define the scope of the review carefully, and if necessary

challenge the scope or definitions used

• Ensure that the letter of engagement is clear and reflects the Requirement Notice

• Determine on what basis the skilled person is judging the firm.

Finally, he suggested “The way in which the firm under review organises itself at the outset really does make an impression. If a firm is organised, then my expectations will be that the firm will do the right thing.”

Brian Dilley, Lloyds Banking Group, reminded the audience that it is possible to challenge the scope of a s166, both as the skilled person, or as the firm subject to review. The challenge will not always be successful, but it will not be seen as a “black mark”. “If you think that the FCA is holding a line that is unreasonable and disproportionate, you should challenge it, and say why you think it is wrong,” he suggested. “And you should not assume that everybody at all levels in the FCA has the same view as people at the top of the FCA.” He suggested that preparation is essential for firms undergoing review. Firms should review materials supplied to the skilled person and mock interviews, conducted by a third party, can be crucial.

Accountability is central to embracing and embedding SMR – Crannis

Preparation is essential for firms undergoing a s166 – Allen and Dilley

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“There is nothing that I am saying right now that is meant to diminish my responsibility for what happened,” a voice announces from the stage. “It is not my wish to absolve myself of any type of responsibility or to try to

claim that I didn’t do anything wrong.” A heavy silence engulfs the room and for the next 50 minutes we will sit,

engrossed, as Kweku Adoboli – the UBS rogue trader – provides an articulate, candid and occasionally self-deprecating account of his story. It is a story with which we are all familiar: his upbringing as the son of a UN official; his joining UBS as an operations analyst straight out of university in 2003, before moving to the ETF trading desk in 2006; and his rapid rise and equally dramatic fall from grace.

Those broad outlines sketch the prototypical portrait of “hotshot trader gone bad”. Less well-documented are the details, the light and shade that renders the picture three-dimensional, meaningful, and real. For example, what was the context in which these events took place, in terms of the culture within the trading team, the bank, and the sector itself? To what extent did that context enable or encourage his mistakes, rather than deter him from the path that he selected? Most importantly, from an understanding of that context, what lessons can be learned to prevent the same mistakes from being made in the future? These issues formed the centerpiece of his presentation.

From rise to fallWhat is clear from the outset is that the events that led to Adoboli’s conviction for fraud were the result of a complex set of circumstances, including failings at the level of culture, governance and oversight, as well as within the management of individual relationships.

What is it that I want to be responsible for in my society and what must my colleagues strive for too? I must demandto be led and must lead by example, not just to achieve my institutional goal,but to ensure that my institution’s goals further the interests of a global society which my children must one day inherit

In search of purpose Kweku Adoboli urged conference delegates to address the cultural and organisational failings that pervade the sector,

writes James Thomas

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Joining the ETF team in 2006 he found himself on “a very young desk, growing extremely rapidly… from a few hundred million dollars of balance sheet footprint in 2005/6, to $50bn of balance sheet footprint in 2007”. The risks accompanying that expansion had to be internalised just as the bank was itself experiencing extreme pressures following the subprime crisis. In the face of these opposing forces he witnessed the culture at the bank evolve from one in which there was a “sense of family and a common purpose; a common goal” towards one in which “people became much more defensive and the institution became less about a collegiate search for resolution to problems”.

Seeing the warning signs, the head of his desk – Mike Foster – left the firm in 2007 with the astonishing result that Adoboli (then 27) and his 25-year-old supervisor, John Hughes, (who between them had just 30 months of trading experience) were left in charge of a $50bn trading book. Perhaps through some combination of their inexperience, the extreme complexity of the book, a lack of support (“Mike Foster’s managers didn’t really understand how the book worked”), and the surrounding market circumstances, Adoboli and Hughes increasingly found themselves struggling to manage the book as hedges were misaligned and losses began to accrue.

Because of the size of the book, Adoboli explains, a process had been put in place – with the knowledge of Accounts – to suspend profits and losses on a daily basis in order to smooth P&L volatility. Adoboli and Hughes exploited this feature to develop what they called “the umbrella”, a slush fund that they operated on the side, which “took some risk off the book, basically so that some people in the bank couldn’t see the full exposure that the book was running”.

“What the umbrella did is that it took the decision-making away from the accountants into the hands of the traders, so that we could now make that decision to suspend or release P&L without going to the accountants,” he continues. “The accountants knew about the suspended P&L because there was a booking, and whenever we needed to absorb some loss or release some profit, we would just change that booking. So there were a lot of people involved in this process. And it meant that we weren’t really hiding what we were doing, but you had to know how the book worked to be able to understand what was going on. And I guess that’s a function of the complexity of the product but also the pressure that we were under to find a way to make it work.”

Entering the grey zoneWith the umbrella flattering its performance, the ETF desk was increasingly called upon to “push harder”. Targets were revised from $150m a year to $900m. “We had to do that

extremely quickly because our new CEO wanted us to take more risk,” he recalls.

Here, what Adoboli refers to as the “break between the risk takers and the risk managers” began to bite. “There were a lot of conversations where we were told ‘you need to push the boundaries, and you won’t know if you’ve pushed them hard enough until you get slapped on the back of the wrist’,” he says. “We felt that everybody around us knew what was going on. There was a sort of break between the bank’s desire for risk and its capability to take that risk on, and we were sat in the middle of that as traders, in the grey zone in between policy and practice, trying to find out a way to make the business work for the bank. This ‘policy-practice’ gap is where traders tend to sit… trying to make profits in a world where the rules either don’t facilitate that search for profit or they aren’t clear. When things aren’t absolutely clear, traders think that their job is to try and find their way through these

obstacles, and that’s what we were doing.”In 2011, the market began to crash. Having taken a long

position – in line with UBS’s house view – Adoboli and Hughes saw 30% wiped off the value of the market in the space of six weeks, and they “rode [the market] all the way down”. With losses too great to conceal any longer, the game was up. Adoboli sent his infamous confessional email and, after a gruelling internal interview, was arrested on 15th September. His trial and subsequent conviction captivated the City.

Effective and honest compliance practiceIt is clear that he has spent much of the intervening period reflecting on his experience, and emerged from prison last year with lessons to share. The first of these, he says, is “the need to develop effective and honest compliance training practice”. Essentially computer-based training doesn’t work “because it doesn’t reach into the emotional part of decision making”. “You need to get to the emotional place in someone’s heart, in someone’s head, where every decision they make is guided by this emotional driver to do the right thing,” he argues.

One means of achieving this, he suggests, is to properly educate individuals, from early in their careers, about the history of the industry and of their firms, and of the mistakes that have been made in the past. “It’s only since I’ve been through this process that I’ve learned the history of UBS,”

People need to operate in an environment that tolerates mistake making and doesn’t castigate people for getting things wrong

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he points out, “and that what happened to me has happened over and over and over again, just in UBS!”

Moreover, appealing to individuals’ emotions is important, he believes, because “most traders and salespeople are not bad people. They just make terrible mistakes, and in an environment that doesn’t support that mistake making they then try and cover up their mistakes”. Therefore, a related change that needs to take place is that people “need to operate in an environment that tolerates mistake making and doesn’t castigate people for getting things wrong”.

As well as promoting this culture of toleration, he argues that there is a related need to educate traders in how to react when things do go wrong. “You cannot send junior traders in search of risk, without also getting them to understand what happens when the risk is massive,” he says, drawing a parallel between approaches to catastrophe management taken in the aviation sector compared with the financial sector. “Pilots of a Boeing 747 sit in a simulator and they practice what it’s like to bring a 747 fully laden out of a thunderstorm after it’s been struck by lightning,” he remarks. “But you expect traders, when they get into trouble, to figure a way out [without any practice or training].”

Closing the gapCreating this type of open and transparent operating environment requires firms to understand and acknowledge “the gap between what you say you do and what you actually do”. “You need to be honest to your people about what is in that gap,” he says, “because as soon as the traders and the risk takers realise that there is a grey zone and that you tolerate it, they will assume that you want them to sit in that grey zone.”

There is, therefore, a need to “revolutionise the relationship between risk takers and their risk managers in compliance, operations, accounting and risk management”. In the past, he says, there has been a fundamental “dissonance” between what firms say they do and what they actually do. “Despite saying that we’re de-risking, we’re actually pushing banks to go more in search of risk,” he argues. “That search for risk – when you say you’re de-risking – creates a break between the risk takers and the risk managers. And that cannot continue within institutions. Both sides – the risk takers and the managers – need to be working together towards a common goal. And they need to believe that they are doing that. The risk managers and the risk takers need to be sitting at the same table having conversations day to day about what’s really going on in the firm.”

Institutional leadership Although he believes that “the message from the top is essential and it needs to be real and pure” he is unconvinced that holding individuals to account – for example, through the increased responsibilities introduced under the senior managers regime – is the best way to achieve the type of change that is necessary. “Blame is not the answer,” he says, “because it actually stops us from fixing the root cause problems”. These problems are “cultural and systemic in nature”.

However, he feels that the financial sector has suffered

from a lack of cross-institutional and cross-industrial learning. Although things may go catastrophically wrong in banking, the tendency has been to “find one or a few people to blame” rather than to thoroughly investigate the cultural and systemic reasons behind the failure and to share findings across the sector.

“If we first face the fact that the problem is cultural and systemic, we can stop [such failures from happening again],” he says, “Unless, in reality, we don’t want to stop it, and that’s perhaps something we need to face up to as well.”

Finding a purposeFinally, he suggests that the sector needs to find its “purpose”, and offers the following invocation: “Each and every one of us must ask: what is it that I want to be responsible for in my society and what must my colleagues strive for too? I must demand to be led and must lead by example, not just to achieve my institutional goal, but to ensure that my institution’s goals further the interests of a global society which my children must one day inherit.”

There was some scepticism when Kweku Adoboli’s involvement with the ICA Conference was announced. However, having listened to what he had to offer, few in the audience could argue against the value of his contribution. It required some bravery for the ICA to make this happen. Going forward, the industry will have to be similarly bold to confront, openly and honestly, its shortcomings.

There was a sort of breakbetween the bank’s desire for risk and its capability to take that risk on, and we were sat in the middle of that astraders, in the grey zone in between policy and practice, trying to find out a way to make the business work for the bank

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The annual ICA Award Ceremony took place at the prestigious Middle Temple in London on 13 April 2016, celebrating the success of 100+ students, many of whom brought family and friends to witness the culmination of all their hard work.

They were joined by the team of ICA staff and the ICT course tutors who had supported them during their studies, to see the awards presented in front of VIP guests, representing Alliance Manchester Business School, the British Bankers’ Association and a number of our key partner organisations from across the globe.

Students were awarded their certificates by ICA CEO Phil Ryan and ICA Chairman Bill Howarth and had individual photographs taken to commemorate the occasion. If you were among that number, you can download your shots via the ICA website: http://tinyurl.com/Award-Ceremony-Images

Special recognition awards were presented to students who excelled in their particular subject and finally we honoured those members who have achieved the criteria for our highest level of membership, Fellowship status, known as FICAs.

For the first time, we were delighted to be able to specifically recognise those students who have enrolled as ICA Members (MICAs) since completion of their qualification and have committed to the ICA Code of Ethics and an ongoing regime of CPD. We have introduced some highly sought after lapel pins, which allow members to wear their professional membership with pride.

(If you are an existing MICA or FICA you can find out more about obtaining your pin on page 26.)

The following students agreed to be included in our Public Roll of Honour

UK and International Advanced Certificate in Anti Money LaunderingWayne Atherton

Diane ButlerLis Field

Monica Guttridge

Jennifer HeanueKelley MacNab

Fredi OjaEpp Saks

Adam WeaverWayne Williams

Award for Outstanding Achievement presented toAdam Weaver

Diploma in Business ComplianceChinwendu Omoworare

Award for Outstanding Achievement presented to

Chinwendu Omoworare

Celebrating students' success

ICA AWARD CEREMONY

UK and International Advanced Certificate in ComplianceKahalu ChilungaSimone Chow

Graeme Davies

Jennifer HartleyPeter Johnson

Hilary MalcolmElena Michaelidou


Elena Michaelidou

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UK and International Diploma in Anti Money LaunderingSaiful Ali

Mark AliboneTeresa Barratt-Mills

Paul BartlettAlessia Braeutigam

David BrandTim Care

Jacqui ChapmanIan CramphornFiona DoneganMichael Douglas

Dean EvansMegan Faherty

Ewa FrackiewiczLois Hamilton-Chan

Juliusz KaniaNouman KhalidJason Lucking

Sally MartinHannah MaslinStephen Morris

Jacqueline MuraneRajendra OjhaAmit Parmar

Salman QasimRobert Rickards

Danielle SharpeZied Smiri

Karen StephensThomas Suter

Ronald YeeRachel Tideswell

Gregory TownsendTrina Trola

Bogdan Vacusta

Awards for Outstanding Achievement presented to

Stephen Morris Paul Bartlett

Jason Lucking

UK and International Diploma in Compliance and Governance Risk & Compliance

Stiofan Appleby Rajwinder Bains

Paul BarnesSimon BrownAbigail Child

Catherine ClarkeAdrienne Condouret

Jeremy Duke

Charlotte DunbarAmjad Majed Habboub

Angela HurstClaire Kay

Garcian McGregorDorothy MensahCarmen Morgan

Keila Paredes

Charlotte Roberts Chris Robinson

Huw Rouse Saboor Siddiqui

Parvadha Swaminathan Gillian Wren


Jeremy Duke Saboor Siddiqui

Professional Post-Graduate Diploma in Governance Risk & ComplianceAya AbukhalafMariano Ciriotti

Claire CutlerBianca Dobrescu

Javier Fuente Poblador

Simon GaudionMichael HowardPuneet Jasuja

Jamie KingSandra Lawrence

Hakan MalmrosIan MoolmanShirley Nzeh

Humphrey WillettsAndrea Wong


Javier Fuente Poblador

ICA Fellow; Certified ProfessionalsBianca Jennifer Dobrescu

Simon GaudionStephen McKellar

Ian MoolmanAndrea Wong

UK & International Diploma in Financial Crime PreventionTariq Aslam

Kernisha DanielCarlisle Eldwidge George

Andrew HodgesEmmanuel Jacques-Poki

Cristina Nucera

Abubaker Opiny Lavan SuqumarBogdan Vacusta


Carlisle Eldwidge George Tariq Aslam

ICA AWARD CEREMONY

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ICA Lapel PinsICA has introduced a high quality emblem which can be worn on a business suit to advise business colleagues of your professional competence and standing.

They are available in two designs and are appropriate for ICA Graduates who hold the designation (Professional) Member – or MICA and Fellow or FICA.

To obtain your lapel pin you will need to meet the entry criteria for the designation and continue to evidence the appropriate ongoing commitment to the ICA Code of Ethics and continuous professional development.

ICA reserve the right not to make this item available to any member if there are any doubts that its use will contravene any of the published ICA Code of Ethics

ICAA115

Every member can collect their first emblem by registering and attending an ICA event or by ordering direct from the ICA website (With effect from July 1st 2016). The first pin is available free of charge – but subject to postage and packing. Second and subsequent pins (where required) can be purchased for £9.95 plus P&P where originals are lost or stolen.

FRAUD AND MONEY LAUNDERING DETECTION

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Reading the signsMónica Ramírez Chimal outlines some key detection

methods for fraud and money laundering

Much has been written about fraud and money laundering (ML) prevention methods,

but what about methods of detecting these crimes? Of course, fraud and ML are not the same thing. Broadly, fraud detection refers to the question: “where is the money?” while ML detection refers to the question: “where does the money come from?” However, fraud and ML do have a

common denominator: the criminal seeks to hide the crime. Therefore, the detection methods described in this article can be applied to both (please note that the methods outlined below are not exhaustive).

Hotlines or reporting mechanismsThe key to ensuring that employees use hotlines or reporting mechanisms

is that the individual reporting the fraud or ML must be protected and that the information must be treated confidentially. Moreover, it is important that reporting mechanisms are also available to providers and third parties (strategic alliances, partners, etc). You would be surprised at how many people are willing to talk using such mechanisms, but only if they perceive them as a serious tool and

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are confident that the company will take action. Many companies assume that if they receive no reports, then everything is ok. They are mistaken! People often don’t use hotlines either because they are afraid of the consequences of doing so, or because they don’t perceive them to be a reliable source.

Surveys Similar to hotlines, surveys should cover both employees and third parties, and should assure their confidentiality and protection. Moreover, surveys should be distributed on a random and ongoing basis. Survey questions should be phrased in a way that provides respondents with the confidence to answer without fear of retaliation. For example, you might ask third parties “Do you enjoy a positive / professional relationship with our employee?” or “Do you want to change our representative?” as opposed to “Has our employee tried to bribe you?” If the provider is honest, this will give them ample opportunity to report any misconduct on the part of your employees. It will also help you to measure employees’ performance. For employees, change the wording to:

“Do you enjoy a positive / professional relationship with our suppliers? Which supplier gives you a ‘headache’?”

Audits or reviews Your employees may well be jaded with the number of reviews carried out either by external auditors, internal auditors, compliance, or the regulators. Therefore, internal areas that manage the risk of fraud and ML are advised to conduct reviews on a random basis, so that employees cannot simply rely on the same reporting period or documentation used in external reviews. Methods and scope should be updated frequently and the review plans for these two areas should be rotated so that people do not know when the audit will take place.

Monitor Once reviews or audits have been made, what happens next? In theory, auditors or the authorities will return the next year to perform a follow-up. In practice, however, resources do not always allow for this, meaning that audit/review reports may simply be “filed”/ignored.

The most important thing about any review is not what is observed, but how and when the company responds to any findings or recommendations. If an individual does not want to follow a review’s recommendations to improve a process, this should be regarded as unusual. If their reason for not taking action is vague – or “we have not had enough time” – then this may be regarded with some suspicion.

People know that, whenever an audit takes place, the probability of having a follow-up may be low, due to time and resources. However, for effective detection, follow-up is

a key tool. It is also important to keep track of those areas that have had more observations and the people involved in them. This should be compared with the information generated from surveys and hotlines, which could reveal “red flags” worth examining in greater detail.

Exit interviews When people are about to leave a company they are more likely to speak openly and honestly about their experiences there. Exit interviews are therefore a key tool to evaluate performance, but also to glean information that could uncover fraud and ML activity.

In Brief

• Similar methods can be applied for the detection of both fraud and money laundering

• Hotlines and surveys should ensure confidentiality and protection

• Exit interviews should be performed by someone from Compliance or Internal Audit

• “Keep an ear to the ground” and monitor both individuals’ behaviour in the workplace and on social networks

• Seek to identify relationships between data from different sources

The key to ensuring that employees use hotlines or reporting mechanisms is that the individual reporting the fraud or ML must be protected and that the information must be treated confidentially

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In many companies, exit interviews are performed by HR. This is a mistake. Although HR may find something wrong, it is preferable if the interview is handled by someone skilled and experienced in identifying red flags. An individual’s nonverbal communication – the way he looks at you, his gestures, how he is seated – can be revealing, while just one comment can provide an indication that it is worth asking more. However, if the interviewer is not trained to identify such signs, then the opportunity to acquire more information will be lost.

The solution is to appoint somebody either from Internal Audit or Compliance, who is trained to read such signals and can handle the interview appropriately. The interview should not become interrogatory, but nor do you want to miss opportunities.

It is also important to remember that fraud and ML can be performed by individuals of different genders, backgrounds, and job titles, including employees in cleaning roles, security, messengers, secretaries, and so forth. Do not be selective.

LookIt is important to get out of your office and study people and their place of work. Do you notice any changes that appear suspicious? Perhaps a photo on someone’s desk of their latest expensive vacation? Have they recently bought a new house or car? Or have they recently revamped their image: a new watch, expensive jewellery or mobile, designer clothes or accessories? If any such purchases seem unusually extravagant or inconsistent with the individual’s pay bracket, they may point to illicit activity. We have a saying in Mexico: “the fish dies by its own mouth”, so pay attention to details and be alert to individuals “showing off” newly-acquired wealth.

Social networks Similarly, it is important to verify that Internal Audit and Compliance include in their plans the periodical monitoring of social networks. If someone is discrete in his outward behaviour or appearance, he may be less so in his online activities on

Facebook, LinkedIn, Twitter, etc. Many cases have been reported of the police pursuing investigations after individuals have posted “I killed my mother in law” or extravagant pictures of guns, drugs, and so forth onto social media sites.

Use dataA wealth of information is available to you. It is important not keep this information in “silos”, but to look instead for relationships between data from different sources. For example, if your company is a restaurant, the data from purchases, inventory and sales should be compared. If the restaurant has experienced increased demand, then you will have sold more, and this implies that more purchases of food and drink should have been made and so the inventory should have experienced high turnover. In other words, the three areas should be correlated. If not then something may be wrong. As another example, compare data from providers, employees and clients. Check for matches. This could be a helpful means of detecting fraud and ML as well as conflicts of interest. In both examples ask: do the findings make sense? If not, question the individual(s) concerned, and do not be satisfied unless they provide a reasonable explanation.

Blind confirmations Blind confirmations can be used with third parties and clients, who are debtors with your company. Write to them confirming that an amount is due but do not include the amount (hence “blind”). Compare their response with your records. Are they correct? If not, who is dealing with that client or vendor? The results of blind confirmations can be compared against the results of surveys, hotlines, audits and reviews mentioned above.

Visit This is my favourite! Many companies do not take the time to visit a vendor or client’s premises, due to lack of time or resources. In practice, if such a visit is undertaken before any commercial relationship is established, this can be a powerful prevention method to deter fraud or ML. I have witnessed many cases of major providers who, upon an unannounced visit, have turned out to be operating from facilities that either don’t exist, are empty buildings, or are residential properties.

Keep an ear to the groundEvery company will have rumours or gossip circulating, either at the water cooler, in the aisles, in the smoking area, or the parking lot. Do not dismiss such information out of hand, as it may provide an indication of whether someone has addiction problems (drugs, alcohol, gambling), financial problems, or even a lover! This may sound laughable, but such matters have been proven in the past to be indicators that an individual is involved in a fraud or ML scheme.

Once fraud or ML is detected, it is important that the company follows up and takes action. Otherwise prevention mechanisms will not be effective because people simply won’t take them seriously. Remember: actions speak louder than words…

Mónica Ramírez Chimal is Partner and Founder of Asserto RSC in Mexico City. (www.TheAssertoRSC.com)

The most important thing about any reviewis not what is observed, but how and when thecompany respondsto any findings or recommendations. If an individual does not want to follow a review’s recommendations to improve a process,this should be regarded as unusual

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CULTURE AND ETHICS

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How culture changed at 37,000 feet

Phil Ryan explores one lever of culture change in the aviation industry and draws out the lessons that can be

directly transferred to other industries

In Brief

• Cultural change is a multidimensional problem

• “PACE” can provide a useful mechanism for communicating clear instructions up the chain of command

• This should be coupled with relationship change, to ensure that everybody within an organisation has a voice and that decision-makers listen

We all understand that culture is, at best, a nebulous concept and

there is no doubt that trying to “manage” something that almost defies definition is a big ask.

I am sure that you, like me, have heard the many definitions of culture ranging from “the way people think, feel and act” to the more psychologically robust, but possibly no more helpful: “The collective programming of the mind distinguishing the members of one group of people from another.”1

With this in mind, it is easy to see how setting (and managing) an appropriate culture often falls at the first hurdle of not being able to determine exactly what it is that you are trying to manage.

However, by recognising that culture is the output, and that it is created by a number of formative inputs, we can use the 80/20 rule (Pareto’s Principle that 80% of the output comes from 20% of the input) to start to explore practical steps to make a positive shift.

This is exactly how the authorities went about tackling the unenviable safety record of US air travel in the latter part of the 20th century.2 The input that made all of the difference, in the world of aviation, was the degree to which captains were viewed as supreme leaders, whose expertise and egos were unassailable.

Notice any similarities to the post-crisis banking industry here?

Flight 173The ramifications of this are best

understood through examples. Perhaps the most significant of these is United Airlines Flight 173 from John F. Kennedy International Airport (JFK) to Portland, Oregon, which took to

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the air on 28 December 1978. Some argue that, in doing so, it became the single most important catalyst for the cultural change which toppled the status of the captain as the all-knowing supremo.

You can read a detailed description of what happened in Chapter 2 of Matthew Syed’s excellent 2015 book Black Box Thinking – The Surprising Truth About Success.3 For the purpose of this article, I will simply explain that this otherwise routine flight started to go wrong at around 17.10, when the aircraft was given clearance to land and the 52-year-old captain, with 25 years of successful flight experience behind him, pulled the lever to lower the landing gear and, instead of the usual click of success, heard a loud and indeterminate thud.

What followed, according to Syed, was tantamount to a fixation by the captain on checking whether or not the landing gear was safely down, a fixation that resulted in several circuits of the airport being made while check after check was called for and air traffic control (ATC) was repeatedly asked for additional time to troubleshoot.

Culturally, cabin crews at that time were conditioned to follow the captain’s lead unquestioningly. He (and it was always a “he”) was the subject matter expert, the most experienced person and, by proxy, infallible.

This fact, together with the narrowing of his attention onto one

fixed goal, meant that by the time the captain finally registered that he had a much larger and more urgent problem there was not enough fuel left to make it back to the runway.

Flight 173 crash-landed moments later. Miraculously, no one on the ground lost their life, but eight passengers and two crew from the 181 people on board died.4

In retrospect, it seems unbelievable that a trained and professional cabin crew would allow their leader to fly them to their potential or, sadly, actual death, rather than break the protocols of speaking out against his strategy. Clearly organisations whose dominant culture is to “follow the heroic leader” need to sit up and take note.

The post-crash investigations began a programme of improvements in cabin culture and communication protocols that, according to aviation expert Shawn Pruchnicki, “has subsequently saved thousands of lives”.5 A new escalation methodology for junior members to follow, if they felt that an important message was not getting through, was created and usage was monitored. The mnemonic PACE describes this and provides a useful mechanism to this day (see Box 1).

However, it was not an overnight turnaround and, like all significant cultural challenges, it proved to be multidimensional problem. Tragically,

it also claimed a number of other lives before it was finally resolved.

Flights 052 and 801Fast-forward to January 1990 and Avianca Airlines Flight 052, from Bogota to JFK, for another example of poor communication, in which a Colombian flight engineer was involved. This led to the plane crashing as a result of “fuel exhaustion”, claiming the lives of 73 of the 158 passengers and crew.

This time, however, it wasn’t the captain who failed to hear the message, but ATC, who had kept the plane in a holding pattern until she fell from the sky.

How could something like this happen when communication was constantly maintained between the flight deck and the highly-trained team at JFK?

The answer to this is similar to that in the third disaster that I want to highlight, which involved the crash of Korean Airlines Flight 801 in 1997. It ploughed into the side of a hill in the US territory of Guam because the captain was using visual cues in poor weather conditions while ignoring the advice of a Korean member of his cabin crew to pay attention to the radar signals.

Both flight engineers, whose expertise and calls for change went unheard, had been raised in countries whose dominant national culture was what Dutch psychologist Geert Hofstede describes as a “high power index” culture.6 In other words, both Colombians and Koreans are brought up to respect hierarchy, defer to elders and raise any concerns in a respectful and non-confrontational tone.

In his bestseller Outliers,7 scientific journalist Malcolm Gladwell reports that when the Colombian first officer Koltz had been instructed to tell ATC that the plane was nearly out of fuel, his most assertive comment had been: “We are climbing and will maintain three thousand feet and…. Ah, we’re running out of fuel, sir.”

The Korean flight engineer’s approach to challenging his captain’s decision to rely on visual cues rather than radar-assisted landing equipment sounded like this: “Don’t you think it rains more, in this area, here?”

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While you can have the best process in the world for communicating clear instructions, if you don’t consider the confidence levels, deference to hierarchy and relative self-esteemof the users, then cross-cultural communication can still prove fatal

Box 1: An example of escalation using PACE

Probe – What options are we considering to ensure we monitor all suspect payments, regardless of the amount?Alert – Last month only 40% of flagged payments were subject to the four eyes checkChallenge – If we don’t make a dramatic change we are leaving the board and the bank open to direct regulatory action.Emergency – I am alerting the board to devote additional resource to this area or we risk enforcement action.

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So while you can have the best process in the world for communicating clear instructions, if you don’t consider the confidence levels, deference to hierarchy and relative self-esteem of the users, then cross-cultural communication can still prove fatal.

But change did happen.

The fullest pictureKorean Airlines is perhaps the best example. In the wake of the Guam disaster, the airline appointed an external adviser, David Greenberg from Delta Air Lines. He recognised the need to explicitly change the relationships between cabin crew members and to upgrade their self-image from subordinate to specialist subjectmatter experts. It resulted in Korean Airlines’ safety record shifting from being 17 times worse than the prevailing poor averages to being one of the best in the industry.

Box 2 provides a quick insight into the road map that was followed at the time to ensure that everybody had a voice and all decision-makers – from the captain to the ATC staff – listened, understood and acted upon the fullest picture of information available.

This simple approach could add value in boardrooms across a number of industries today.

Lessons bought with bloodTo complete our story, let me assure you that air travel today enjoys its best ever safety record and millions of people move across the globe every month without incident. According to Syed, this is down to one overriding factor: the industry’s willingness to admit its errors, dissect them after the fact and learn something about which cultural change levers to pull in the future.

Is this a guarantee of 100% success? Of course not, but even when things go wrong that foundation of learning and positive change provides a cushion to minimise future problems.

On 15 January 2009, Captain Sullenberg was only minutes away from New York’s LaGuardia Airport after a routine take-off when both his A320 Airbus’s engines were shut down by a flock of geese that flew head first into the plane.

Working together, considering all their options and communicating effectively throughout, Sullenberg and his team landed the 70 tonne plane on the Hudson River, with no fatalities. In an interview that followed, months later, the captain said:

“Everything we know… every rule in the book, every procedure, we have because someone somewhere died. We have lessons literally bought with blood that we preserve as institutional knowledge and pass on to succeeding generations”.

The loop of culture change was arguably completed that day. The movers and shakers in the industry had recognised how adult:adult communication (the input) could influence culture and how that, in turn, avoided repeating patterns of devastating outcomes.

It took time, iterative learning and the willingness to acknowledge the cause and effect relationships involved, but the ability to shift that nebulous beast of culture is clear for us all to see. We just have to start by finding the right inputs to shape…

Phil Ryan is CEO of the International Compliance Association

CULTURE AND ETHICS

Box 2: Steps to ensure all voices heard

• Eliminate unnecessary formality, use of surnames and titles that reinforce hierarchy.

• Use adult:adult (or assertive) language, which combines factual analysis, a likely cause-effect outcome and an unambiguous recommendation.

• Recognise the specialist skills that each member of the team brings. Invite contributions from all, but specifically seek out recommendations from the appropriate subject matter expert for making decisions.

• Develop processes that bring key information to the fore and avoid “informational overload”.

1. Geert Hofstede 2. I write this in the wake of

the Egypt Air disaster, which dominated the media in May 2016, involving the tragic loss of 66 passengers and crew. While high-profile incidents like this inevitably attract much coverage, the percentage of aviation incidents in the 21st century vs the number of successful flights confirm that this is a safer method of travel than crossing the road.

3. John Murray Publishers (2015)4. One of the crew members to

die was the flight engineer who was receiving the data on diminishing fuel reserves, but who failed to speak up and alert the captain.

5. Black Box Thinking (Syed), Page 33

6. See https://geert-hofstede.com/tools.html

7. Outliers, The Ethnic Theory of Plane Crashes, Chapter 7, Penguin, 2008

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ETHICS AND CULTURE

The cultural conundrum

Jennyfer Stanley considers the challenge of improving organisational behaviour in the financial services sector

The debate around organisational behaviour and culture has existed for a long time. In the financial services sector, every executive or senior individual will have

been instructed at some point in their career about the importance of establishing a positive and strong organisational culture. To achieve this, organisations typically look to build their culture upon a few key principles: strong leadership, strong communication, and empowering employees.

But what do such principles really mean, and why are they so difficult to implement? Given the political and public pressure on the banking sector, banks are desperately looking to address these issues and respond to the regulator’s call for cultural reform.

Severe pressureThe Senior Managers Regime (SMR), the Certification Regime and new Conduct Rules have recently dominated the news as the UK regulator’s means of promoting individual accountability and culture in the banking sector. At present, banks face a number of competing external forces, ranging from onerous regulatory obligations to increased competition, particularly from FinTech firms challenging traditional banking names in the industry. As a result, banks are under severe pressure to manage their costs, not only to remain competitive but also to fund regulatory projects.

Compliance is one area in which banks and financial institutions cannot easily cut back on costs. Banks today are paying for these reforms by scaling back on areas that are considered to be unnecessary. Such cost-saving targets are imposed from the top, with middle management expected to do what they can to achieve those targets. Inevitably, this often results in a headcount reduction. Consequently, more regulation, general increased business complexities, and greater demand means that the remaining staff are not

only expected to continue business as usual, but also pick up additional workload.

Knowing that regulatory demands will continue, and cost management will remain a focus, banks must look to implement a positive organisational culture in an efficient way.

It starts from the topThe spirit behind SMR is not wrong; compliance and effective cultural change does indeed start from the top. Banking leaders are responsible for setting the tone they want to instil and grow in their organisation. Sitting at the top of the chain of command, their actions set an example for all to follow, and they are reliant on having strong middle management to carry out their mandate and disseminate their message. Backed by a strong team, they have an extended network of people throughout the organisation to get things done and address frontline issues.

Empowering peopleEmployees have to feel that they are empowered to fix problems and propose solutions. Empowering employees lets them know that they are trusted by management and often calls for a review of how decisions are made in the firm. For example, are those who perform day-to-day operational roles rewarded for identifying issues, or is the culture about burying one’s head in the sand and just “getting on” with the work?

Firms whose employees do the latter either don’t see how their contributions impact on the firm, or are not trained to spot early issues. Firms with strong governance and clear, delegated authority encourage clear accountability and responsibility in their people.

In Brief

• Employees must feel that they are empowered to fix problems and propose solutions

• Training and development is key• Organisations seeking to change their culture should

publish a clear roadmap, and secure employee buy in

Culture takes time to embed and maintain. Firms looking for quick returns will be disappointed

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ETHICS AND CULTURE

Training and development (linked to outcomes and objectives)Banks demand a lot from their employees in today’s environment. As such, upskilling and employee training has never been more important. The demands on the job are far greater than before because the nature of the business and regulatory requirements are more complex.

Training and development tend to be overlooked or short-changed in today’s cost-cutting environment. In doing so, financial institutions are unwittingly sending a negative message to staff that their development is not valued. Even more worrying is that those poorly trained employees don’t feel they have adequate support from the firm to do their jobs. Studies have shown that companies that invest in their people reap long-term dividends with employees staying on or rotating into other roles in the firm.

Fixing small problems before they festerCurrently, banks have to respond to tight regulatory deadlines aimed at “improving” their culture, the SMR being a good recent example. An awareness of and consensus by

management on areas that are broken and need prioritised attention to fix is essential.

Banks want to be in a position where they are not storing problems, taking a proactive stance while issues are still manageable, rather than having to make reactive decisions in crisis management. Reacting to full-blown issues is emotionally and financially draining and does not help with employee morale.

Culture takes time to embed and maintain. Firms looking for quick returns will be disappointed. To implement successful, sustainable change, organisations must begin by publishing a clear roadmap and corralling every employee to support any change agenda. History has proven that an investment in people, fostering strong communication and shared accountability, creates organisations that are better able to face day-to-day challenges and prepare the business into the future.

Jennyfer Stanley is a Partner at Crossbridge, a specialist financial services consultancy

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SKILLS

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Breaking throughLance King describes the career epiphany that saw him move from sales to compliance, and offers advice for

those planning a similar move

Lance King is Senior FCA Compliance Manager & Deputy MLRO at Telefónica UK Limited, and an ICA Graduate

In Brief

• Individuals moving into Compliance should invest in building a comprehensive knowledge and understanding of how their firm operates

• They should engage in ICA qualifications to develop their knowledge of the regulatory landscape, and maintain that knowledge through continuous monitoring of the regulators’ websites and communications

• Culture must be developed within the confines and personality of the business

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SKILLS

The past 18 months have been quite a rollercoaster. After a long and successful career at a retail bank, which culminated in me being a Director, I decided

that I was ready for a new challenge. Whereas most may pursue a long-held dream to be a writer, undertake a PhD, or devote their life to charity, the outcome of my epiphany was to pursue a career in compliance. I was attracted by this emerging career path, the opportunities it presented for development, its importance to financial services, and the chance of rapid progression.

Therefore, after 20 years of leading successful teams in retail banking, I took a rare opportunity that was presented to me and pursued a senior compliance role in a globally-recognised firm that was going through Financial Conduct Authority (FCA) authorisation. I have not looked back since!

The nadirFor me, the events of the credit crisis that culminated in the part-nationalisation of much of the banking industry represented the nadir of public perception of a sector still reeling from the PPI scandal. The independent banking reviews that were published during this period provided uncomfortable reading regarding the industry’s “cultural shortcomings”. Like many of my longer-serving colleagues I found this perception difficult to stomach given that I had witnessed, on a daily basis, a high level of commitment to the delivery of exceptional service to our customers across the branch network.

The FCA, which rose from the ashes of the Financial Services Authority (FSA), placed heavy emphasis on banks’ mitigation of and controls over conduct risk, and on the need to overhaul many of the practices that had previously been accepted as givens. Responding to this provided me with key skills that, unbeknown to me at the time, would become a vital part of my armoury today. For example, the change management skills of all leaders were at a premium during this period and it was critical that branch managers and advisors understood the “burning platform” for change that demanded a seismic shift in performance management, incentive and quality assurance processes if the necessary cultural change was to be achieved.

The hard yardsMy previous banking experience permitted me an extensive knowledge of embedding compliance culture and working processes. However, the process of full FCA authorisation required a much deeper understanding of FCA principles, rules and guidance. The authorisation process became a focal point in enhancing my technical knowledge, which involved undertaking the “hard yards” of reading and performing gap analysis on existing processes against the relevant FCA rule and sourcebooks.

This approach, although painstaking, significantly developed my understanding of how principles and rules regulation worked in practice, given the regulator’s approach to proportionate systems and controls. It also made it very clear that, although the emphasis on culture was the same, its application within an established bank and a newly-regulated consumer credit firm are very different. Culture is not a universal glove but something that has to be developed and

nurtured within the confines and personality of a business.I also quickly learned that operating within a principles and

rules framework requires compliance professionals to invest significantly in developing a comprehensive understanding of a firm’s structure, operating model and key stakeholders. This approach ensures that the compliance function can act as an “enabler” to help the firm achieve its overall objectives in “the right way”.

My previous experience of working in a commercial regulatory environment has contributed to a level of credibility, which I have used to develop a partnership approach to regulatory compliance. An underestimated role of the Compliance professional is that of an “educator”, who can enhance the effectiveness of embedding regulatory change by providing context and engaging the business in building solutions rather than just demanding implementation without reason. Furnishing the business with an improved level of understanding not only helps to develop the decision-making capability, it also ensures that ownership, accountability and culture for delivering good customer outcomes becomes engrained within the organisation at all levels.

The outcome of my epiphany was to pursue a career in compliance. I was attracted bythis emerging career path, theopportunities it presented fordevelopment, its importance to financial services, and thechance of rapid progressionKey pointsSo, what is my key advice after 18 months in the profession? Whilst I’m by no means a veteran, some points are very clear to me.

The advice I would give to individuals who are beginning the journey into compliance would be to invest significantly in building a comprehensive knowledge and understanding of how your firm operates and build an extensive knowledge of the FCA regulatory landscape. I would also thoroughly recommend engaging in the ICA qualifications as my studies have significantly enhanced my understanding of the regulatory landscape and the importance of implementing a robust control framework.

However, this should also be supplemented with ongoing monitoring of the FCA website for guides, updates and enforcement actions that offer insight into the regulator’s priorities and provide case studies of instances in which systems, controls and behaviours have fallen well short of the regulator’s expectations. Once armed with an extensive knowledge of the FCA landscape and of your own business you will be better placed to achieve effective cultural and systems and controls change, which will help you to achieve your company’s strategic objectives.

And so to the next stage as I continue my compliance journey well beyond the initial career epiphany…

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IMPLO CONFERENCE

The opening day of the IMLPO Conference – Navigating Complexity: The Route-

Map To Financial Crime Prevention Compliance – offered a mixture of regulatory updates and reports from the frontlines of law enforcement and investigations, in which the recurring themes were “proportionality”, “risk” and “effectiveness”.

Working togetherOn the latter, DC Stu Hounsell, of the National Terrorist Financial Investigation Unit, began proceedings, describing the process of and outcomes from Operation Miching. This was a recent inquiry into a vishing fraud ring targeting vulnerable, elderly victims, who were contacted over the phone by criminals posing as police officers and encouraged to withdraw and hand

over often huge sums of cash from their bank accounts, with the money being directed to fund ISIS.

His question to the audience was: “How do we stop this happening again?” While offending rates dropped off after the success of the operation, they are now in excess 120% of where they were previously, he said. “There is one obvious place to get ahead of this, and that’s at the bank,” he urged. “If you can stop the victim withdrawing the money then the conspiracy collapses in on itself. There has to be a shift in approach at the branch. Rather than branch staff being encouraged run a set of questions and answers, they need to be confident enough to say ‘we’re not happy about this, this is unusual activity on your account… we need to make you aware that there is a fraud going at the moment’.

Next, his colleague, DC Alex Beavan, provided an account of Operation FINELINE, which was aimed at bringing to justice the notorious smuggler and terrorist Tom “Slab” Murphy, who had escaped conviction for over 30 years. He described how the provisional IRA has persistently exploited tax loopholes between the UK and Ireland and laundered millions through property investments in the UK. Again, the message was one of the need for co-operation between the banks and law enforcement. “No one is untouchable if we work together,” he suggested, adding that MLROs can make a real difference; after all, “it took finance to bring Tom ‘Slab’ Murphy down.”

The message was later reinforced by DCI Kenny Thomson & DI Garry Deans, of Police Scotland and the Greater Manchester Police North West Counter Terrorism Unit. As DCI Thomson put it: “The bad guys speak to each other. We have to make sure that we speak to each other more efficiently.” He described the current trends his team is encountering: threats from insiders; the targeting of vulnerable victims; and vishing, phishing and smishing. Emerging trends included the opening of multiple accounts by foreign organised crime groups, and DCI Thomson outlined his concern that this reflected a possible relaxation of KYC rules in branch. Meanwhile DI Deans warned against the government's proposal to increase the threshold for SARs from £1,000 to the tens of thousands.

Proportionality, risk and effectiveness

James Thomas reports from the IMPLO Conference

Thomson: We have to make sure that we speak to each other more efficiently

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IMPLO CONFERENCE

Deferred prosecution agreementsMark Thompson, Head of Proceeds of Crime Division – Serious Fraud Office (SFO), provided an explanation of both the SFO’s increasing appetite to take on more money laundering investigations (reflected in a doubling of his team since 2012) and, following the UK’s first deferred prosecution agreement (DPA) at the end of last year, its approach to DPAs and the circumstances under which they may be awarded. Reminding the audience that DPAs are only available to corporates not individuals, he added that “in principle we deal with corporates in the same way as we would deal with anyone else” and said that the SFO welcomes companies working constructively with it.

On the question of what bearing a DPA has on the position of any individuals involved, he confirmed that

the SFO “would probably expect as a hallmark of co-operation that the company would provide information on such individuals that was relevant to our investigation”. Regarding the

scope for punitive damages in DPAs, he explained that there is a published tariff scheme under the code for DPAs that describes the process that prosecutors should follow to

Thompson: In principle we deal with corporates in the same way as we would deal with anyone else

Tax evasion: the new corporate criminal offence

Jennie Haslett, Centre for Offshore Evasion Strategy, HMRC, discussed the new criminal offence to apply to corporations whose representatives criminally facilitate tax evasion, legislation for which is expected this year following consultation. She explained that the HSBC data leaks were a big driver in drawing attention to the fact that those who commit the most complex tax evasion need professional help to do so. “While traditionally HMRC and others have focused on actually getting to the taxpayer and applying civil penalty or having a criminal conviction, internationally everyone is starting to look up the chain at who is helping people to commit tax evasion, either knowingly or unknowingly,” she said.

She explained the three stages of the offence:• Stage 1: Criminal tax evasion by a taxpayer (either an individual or an entity) under the existing law (i.e. a deliberate

act, for which the criminal standard of “beyond all reasonable doubt” applies)• Stage 2: Criminal facilitation of this offence by a representative of the corporation, as defined by the Accessories and

Abettors Act 1861, for which the criminal standard applies. This can include both actions and omissions where there is a legal duty to act (so, for example, with regards to SARs, “if you have a suspicion that a client is doing something that would trigger a legal responsibility to submit a SAR, and you deliberately don’t submit one because you are trying to help the client get away with it, you could be within scope”)

• Stage 3: The corporation failed to prevent its representative from committing the criminal act outlined in Stage 2. This is a strict liability offence (i.e. no mens rea) for which there is a defence of having put in place reasonable procedures to prevent stage 2, and for which the civil standard – “balance of probabilities” – applies.

“When we say ‘reasonable procedures’ what we are talking about is ‘proportionate procedures’,” she explained, “What is the risk you face of having your services misused or having someone in your firm provide services illicitly? And what is proportionate to do to address that risk?” Therefore the draft guidance has followed the Bribery Act's “principles based” approach, rather than a tick list approach. The key principle is “risk assessment”, while top level commitment, due diligence procedures, communication and training, monitoring and review are other important elements. “These are probably the keystones of your every day job,” she said, “and yet it is amazing how many organisations we speak to will send their tax person [rather than their MLRO] to speak to us because they think [of this as a] ‘tax offence’.”

“This isn’t about putting in place a whole new raft of bespoke procedures and controls,” she continued. “This is about bringing together a lot of what is already done within the organisation, and having a clearly articulated policy of how that tackles the risk of tax evasion. Within organisations a lot of the knowledge is not necessarily with the tax people. A lot of the knowledge relevant to this offence and countering any risks of your corporation coming within the scope of this offence, sits with the MLRO.”

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assess the harm. “It isn’t quite the punitive damages idea adopted in America,” he added, “but depending on the damage done a multiplier will be applied.” When asked whether there is the potential for double jeopardy, he explained that the SFO has made considerable progress in its relationships with other jurisdictions,

in particular with the US, meaning that they are increasingly prepared to cede jurisdiction.

A word from the RegulatorsAndrew Turrell, Manager of Financial Crime Specialist Supervision, Financial Conduct Authority (FCA) explained the regulator’s supervisory approach and pointed out that all of the money laundering outcomes that the FCA is looking for in its Business Plan share a common theme of proportionality. Namely:

• Encouraging proportionate application of the rules by firms

• Ensuring that the rules do achieve the right balance

• Ensuring that the FCA acts proportionately.

He emphasised that the regulator’s supervisory approach is “to determine how firms manage financial crime risk, not to identify each and every technical breach”.

On the topic of de-risking, he said that some high level findings will be published shortly from the De-risking Impact Assessment, completed in Q1. These will determine whether the FCA’s previous assertion that effective AML management need not necessarilyesult in “wholesale de-risking” remains valid or not.

Next, Stephen Wilmott, Solicitors Regulation Authority, questioned the value of having 28 separate AML regulators, before giving an account of progress made in the legal sector with regards to AML. The SRA has witnessed an increase in workload as a result of more reports concerning AML compliance, in particular CDD; the investigation of a small number of substantial cases; and an Increase in activity from law enforcement. A recent thematic evaluation of the solicitors sector suggested that the majority of firms have effective AML/CTF compliance frameworks in place, albeit some aspects of the Money Laundering Regulations proved challenging for small firms, while in some firms MLROs lacked authority, status or adequate training.

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IMPLO CONFERENCE

WELCOMING NEW MEMBERS We are delighted that we are now able to open the door to new groups of people wishing to become a member of the ICA and part of our global professional community. Whether you are just starting out in your career, have gained an ICA professional qualification or are an experienced practitioner, there is a level of membership to suit you:

• Affiliate - for those who are new to ICA, whether you are studying for an ICA qualification for the first time, have completed an ICA Certificate or Specialist Certificate qualification, or wish to be part of professional network offering a wealth of resources to help develop your career.

• Associate – for those who have graduated from an ICA Advanced Certificate qualification.

• Professional (MICA) – for holders of an ICA Diploma qualification or experienced practitioners.

• Fellow (FICA) – for holders of an ICA Professional Postgraduate qualification and those who have been a Professional Member for five consecutive years.

More details, including the range of benefits and services available for each level, will be on the ICA website shortly.

ICAA127

Company information, reporting, analysis,automation and monitoring - all in one platform

Compliance Catalyst is a risk assessment tool that streamlines ‘know your customer’ (KYC) and ‘anti-money laundering’ (AML) research.

Analyse risk around companies involving themes such as:

• Countries

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• OFAC

• The new EU AML Directive

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Offshore issues

In the wake of the Panama Papers, the afternoon session focus on offshore issues was extremely timely. Hamish Armstrong, Jersey Financial Services Commission, outlined the development of a model for Trust and Company Service Providers (T&CSPs), which are under increasing scrutiny, both domestically and internationally. The regulator’s focus, he said, is on the compliance culture and view from the top, and whether firms themselves understand the risk. Ted Datta, Bureau van Dijk, considered the immediate and developing fallout from the Panama Papers. Beneficial ownership is under the spotlight as never before, and he pointed out the extent of the task of establishing frameworks for beneficial ownership worldwide. “In the ten minutes that I’ve had to talk to you 250 companies have changed ownership,” he added.

Armstrong: The focus is on the compliance culture and whether firms themselves understand the risk

Haslett: This is about bringing together a lot of what is already done within the organisation, and having a clearly articulated policy of how that tackles the risk of tax evasion

inCOMPLIANCE™39

inCOMPLIANCE™39

WELCOMING NEW MEMBERS We are delighted that we are now able to open the door to new groups of people wishing to become a member of the ICA and part of our global professional community. Whether you are just starting out in your career, have gained an ICA professional qualification or are an experienced practitioner, there is a level of membership to suit you:

• Affiliate - for those who are new to ICA, whether you are studying for an ICA qualification for the first time, have completed an ICA Certificate or Specialist Certificate qualification, or wish to be part of professional network offering a wealth of resources to help develop your career.

• Associate – for those who have graduated from an ICA Advanced Certificate qualification.

• Professional (MICA) – for holders of an ICA Diploma qualification or experienced practitioners.

• Fellow (FICA) – for holders of an ICA Professional Postgraduate qualification and those who have been a Professional Member for five consecutive years.

More details, including the range of benefits and services available for each level, will be on the ICA website shortly.

ICAA127

Company information, reporting, analysis,automation and monitoring - all in one platform

Compliance Catalyst is a risk assessment tool that streamlines ‘know your customer’ (KYC) and ‘anti-money laundering’ (AML) research.

Analyse risk around companies involving themes such as:

• Countries

• Sectors

• OFAC

• The new EU AML Directive

Powered by

• PEPs and Sanctions

• FATCA

• Shareholders

• Directors

• Financial risk

• Companies' group structures

• State-owned companies

• Beneficial owners

bvdinfo.com | [email protected] | 020 7549 5000

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ISSUE 24/SUMMER 2016 inCOMPLIANCE · ISSUE 24/SUMMER 2016 YOUR MAGAZINE FROM THE INTERNATIONAL...

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