At the most recent ABA Compliance Conference one session focused on how compliance officers get invited to the table with other key management.
When asked this question, the CEO of Ally Bank looked at the audience of compliance officers and said “You earn it.”
Few people in a financial institution are as well-positioned to “earn it” as the compliance officer. By virtue of the compliance officer’s job, he/she can make significant contributions to the organization. Let me explain.
Know Your Business
In this data driven regulatory environment, the compliance officer has access to data that cover many of the key businesses at the bank. And furthermore, because of the regulatory need to KYB (“know your business” an abbreviation borrowed from the familiar KYC “know your customer”), the compliance officer has the analysis at hand to contribute to the discussion at the CEO’s table. In essence, as a compliance officer, all you have to do is show what you know – what you’ve learned from you fair lending and other analyses. A few examples will make my point.
Suppose your staff has done some fair lending analysis and one of the outputs is a list of files that it appears should have been approved but, in fact, were denied. A typical approach would be to do a manual file review to ensure that there was proper documentation in the file to justify the credit decision made.
Once the file is cleared that could be the end of the story. However, you might go a step further and try to understand why that file popped up as an exception. Make a note next to that file’s data in a spreadsheet. After you have reviewed all the files from the exception list, go back and look at your notes for each file as to why they showed up as exceptions. Are there any discernible trends? Is the same reason coming up multiple times? Are the exceptions coming from a particular branch, region or loan officer? Could there be a training need? Is there a policy or procedure that needs to be changed?
While what you learn from this review may resolve a fair lending risk, it may also be a path to a cheaper, more effective way to process loan applications. Take your data to the business unit and see if your instincts are correct. In my experience, these opportunities to improve the bank’s processes and procedures can save money. They save money because they reduce the number of exceptions that are likely to show up in future exception reviews, and they may streamline processing and therefore reduce costs beyond the reduction in fair lending costs.
An additional benefit for the compliance officer is that in the process of understanding the fair lending result, he/she has learned more about a business and how it works. This type of knowledge and analysis is part of what gets you that invitation to the CEO’s table.
A second example might have to do with a statistically significant coefficient on a prohibited basis variable in a regression equation. One alternative is to merely accept the statistical result and move on. Another approach is to try to understand why that coefficient is showing up as statistically significant. One reason might be a data problem. Supposedly the data has been checked before the regression estimation ever began. But stranger things have happened.
Another reason may be that a key element in the credit or pricing decision was omitted from the list of regression factors. It might be that a new pricing promotion was initiated during the analysis period. Or, did your institution buy a bank recently? You may want to analyze the new institution’s data separately or at least account for it statistically.
Looking for Trends
A third and final example might be that you notice that many of your exceptions are coming from a particular MSA, region or branch. What’s going on? Digging deeper may reveal special market situations in one of those geographies or there may be a training need. If you, as the compliance officer, can identify (perhaps in conjunction with the business unit) what is happening, you may well be demonstrating not only your knowledge of the regulations but also of the broader business issues.
In short, I urge compliance officers that are not already doing so, to think more broadly about their role and how they can contribute to the overall operations and profitability of the institution. Much of the data to do so is at their fingertips. And that’s one way to get invited to the CEO’s table.
What’s your experience? How have you used what you’ve learned from your analyses to strengthen your institution’s practices and bottom line? I’d love to hear what has worked for you. And don’t forget to visit us on LinkedIn and Facebook.