Compliance and Risk Talent: Technologists First?

By Craig Colgan

You want this job? Apparently, many people do. But you better be agile and embrace change.

The Bureau of Labor and Statistics reported that the unemployment rate for compliance professionals was 0.2% at the end of 2019, down from 5.1% at the end of 2017.

The numbers were not broken down by sector, but a surge in demand for non-banking compliance and risk jobs globally also plays into the mix. Banks benefit from the increased profile of compliance and risk management careers but are challenged by having to compete with rapidly growing sectors also hiring this talent base. And one of the factors is the rapid emergence of technology as increasingly crucial to the work, including artificial intelligence, machine learning, complex analytics, pattern recognition and virtual assistance robots to analyze risk.

“The risk and compliance teams of the future will need depth in both regulatory subject matter expertise and technical skill to stay on top of the rapidly evolving risk landscape,” says Matthew Van Buskirk, co-CEO of Hummingbird Regtech.

Regulatory experts’ understanding of what is possible on the technical front often lags well behind the cutting edge, he points out. But technology experts from outside the banking universe often miss the mark as well, Van Buskirk adds.

“We often say that for ‘regtech’ to work, the team needs to be equally strong in both ‘reg’ and the ‘tech.’ When regulatory experts build technology they tend to try to automate existing processes to make them incrementally better as we have seen in the boom of ‘robotics’ in the compliance space,” he says. “This is certainly an improvement, but it isn’t transformational and, in areas where the existing processes are not fully effective, we are basically just failing faster. When technologists from outside the financial sector try to build compliance solutions, they often produce solutions that may be technically impressive but fail to account for key factors that are obvious to regulatory experts simply due to a lack of context.”

Van Buskirk adds: “To be able to become future proof, a compliance team needs a critical mass of both types of expertise.”

All in an environment where risk is increasing, driven by a combination of operations challenges because of COVID-19, such as employees teleworking, combined with a rapidly changing customer service environment. The OCC warned in a recent report that these factors can create challenges for full and accurate implementation of bank policies to fulfill Bank Secrecy Act, consumer protection and fair lending requirements, among other obligations.

What is the right balance of technologists to regulatory experts on a compliance team?

“Without a doubt, a compliance organization needs both,” notes Stewart Goldman, who leads the risk and compliance practice in the U.S. for Korn Ferry, an executive recruiting and consulting firm. “What I’ve noticed is that the collaboration with technology organizations is growing as opposed to compliance organizations being overrun with pure technologists. Strength around leadership and understanding regulatory expectations will overshadow a pure technology expert any day. I see more specialization within technology teams on risk and compliance, then exponential growth of technologists within the risk and compliance functions.”

Many banks may decide to wait on venturing deeper into AI, machine learning, alternative data and related technologies until regulators provide greater clarity, writes Kathleen Ryan, VP and senior counsel for fair and responsible banking at ABA, in a recent article for the May/June 2020 issue of the ABA Banking Journal. But that clarity is fast arriving, she points out. Banking agencies have in recent months issued clarifying joint statements on these issues, and have taken steps individually to inspire innovation.

One way companies have maintained effective oversight with a smaller staff is by investing in and deploying technology such as artificial intelligence to increase efficiency in some compliance functions, such as various monitoring functions. But somebody in-house—or not—must of course possess those skills.

“As regulations continue to change, technology solutions advance, and the overall speed of change intensifies, all of this could quickly highlight compliance programs that still rely too heavily on manual activities,” says Ryan Rasske, a former bank risk executive and SVP for risk and compliance markets at ABA.

Rasske hosted a general session at ABA’s Risk and Compliance Virtual Conference in July on this topic. It focused on, among other things, how professionals within the same organizations with very different skill sets must take care to efficiently work together.

“It’s important to ensure accurate communications, to avoid costly and or time-consuming errors due to interpretation issues or differences in nomenclature,” Rasske says.

“As regulations continue to change, technology solutions advance, and the overall speed of change intensifies, all of these could quickly highlight compliance programs that still rely too heavily on manual activities, have duplication or inefficient systems or processes, and or are unable to support the business lines at the pace required. Compliance officers can no longer accept inefficient processes and must take steps towards understanding the tools available and embracing the technology that best complements the needs and skills of an effective compliance program.”

Combine all that with increasing expectations for compliance teams to be prepared to do even more, as the topics of risk management, ethics, culture and reputational risk works its way into everyone’s job description, Rasske adds.

“We all understand the benefits of technology or gathering good data and analyzing it to make smart business decisions,” Rasske says. “However, to keep pace with the speed of change, compliance needs to get much better at harnessing these tools to evolve the effectiveness of their programs, including real-time monitoring, automated data analysis and effective reporting.”

How can community banks compete with demand for tech talent?

“This is a major challenge,” Van Buskirk explains. “A community bank is never going to be able to offer the levels of compensation that the tech titans of Silicon Valley can provide, even for more junior engineers. However, that doesn’t mean that community banks are stuck. When compared to the burden of legacy technology, a tangled web of platforms resulting from mergers of the past and the complexity of operating in many jurisdictions faced by large banks, it seems possible that community banks may be able to modernize much more quickly.

He adds: “If an ecosystem of modern cores based on interoperable and open standards begins to form, community banks could gain access to easy to implement capabilities without needing to create everything themselves. We hope to see an ‘app store’-like marketplace form that resolves the vendor capture challenges we face today and puts community banks on a much stronger footing for the future.”

Craig Colgan edits the ABA Risk and Compliance and ABA Bank Marketing channels on the ABA Banking Journal website.

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Craig Colgan

Craig Colgan is a staff writer at the ABA Banking Journal.