New approaches, systems and processes ensure balance between compliance risk management and marketing performance.
By Rolland D. Johannsen
The regulatory environment impacting bank marketing programs and practices continues to evolve, expand and intensify. At the same time, marketing teams are being looked to as the primary revenue engine at many banks. Consequently, bank marketing teams are shifting more of their time and resources toward digital channels and “performance marketing” programs to optimize both campaign performance and ROI.
These digital tools, including social media platforms, have become critical components in the marketing toolkit. However, this shift brings with it a heightened level of regulatory and compliance scrutiny and risk. As a result, there is a danger that compliance concerns may start to restrict the usage of these important tools and make it more difficult to create high impact marketing campaigns. In our view, this requires new approaches, systems and processes to ensure the appropriate balance between compliance risk management and marketing performance.
A rapidly shifting regulatory landscape
Historically, marketing programs and processes have not been the primary focus of most regulatory examinations. However, this is changing, and changing rapidly. For instance:
• Regulators have expanded their focus to not just the compliance factors associated with creative assets (triggering terms, regulatory bugs) but to review a full range of campaign components such as media mix, targeting models and algorithms, tracking and reporting methodologies, etc. Often these reviews are triggered by examining performance data that may indicate unintended bias regarding protected classes, but not always.
• Regulators have also expanded their definitions of UDAAP, bringing a whole new level of compliance-related issues to additional product lines. Such as the CFPB’s expansion of UDAAP to apply fair lending and redlining concepts to deposit product campaigns.
• Regulators have said that financial institutions have culpability for actions taken on their behalf by their third-party digital marketing agencies.
• Regulators are increasingly requiring the use of affirmative marketing programs to supplement BAU marketing activities to ensure proactive outreach and penetration of underrepresented and underserved communities.
Failure to comply with these rapidly evolving regulatory guidelines, expectations and requirements can have serious negative implications for an institution and result in enforcement actions, remediation requirements and/or monetary fines. As a result, compliance personnel are increasing their oversight of marketing campaigns and campaign components and requiring additional and more detailed documentation to assess overall campaign risk and illustrate how that risk is being managed and mitigated.
Within this new regulatory landscape, it is prudent to be proactive and assess current marketing compliance processes to identify opportunities to both enhance risk mitigation practices and streamline the campaign development, review and approval process. This analysis should be conducted in collaboration with both the compliance and marketing teams and be designed to objectively identify any process-related issues that may be causing conflict between the two organizations, expanding risk beyond the bank’s established tolerances and/or creating significant obstacles to marketing program design.
The outcome is a detailed plan to design and implement new practices and programs to ensure that marketing is well-positioned to maintain strong compliance performance while still allowing it to help achieve the bank’s strategic, market and financial goals.
Seven areas of evaluation
The scope of this assessment typically focuses on practices in seven areas of the marketing process:
1. Planning—What type of annual planning process does marketing undertake, how is that plan updated throughout the year, and to what extent are compliance personnel involved and risk management issues identified and evaluated?
2. Campaign development—What process does marketing follow to develop campaigns? When and how is compliance involved in the process? Do reviews require multiple iterations? What aspects of risk (creative assets, audience targeting, modeling, digital media optimization, etc.) are assessed? And how are compliance consideration and reviews documented?
3. Post-campaign review—What type of back-end metrics, measurement techniques and reporting formats are required by compliance and provided by marketing to ensure that audience targeting methodologies were executed according to plan? What corrective action, if any, was recommended and taken to compensate for potential under-representation in LMI or majority-minority communities?
4. Social media—What standards and guidelines are established for employee use of social media channels? How is social media used in marketing campaigns, and what care is taken in audience targeting to ensure and document that disparate treatment of protected classes does not occur?
5. Vendor management—What vetting and selection processes, due diligence, ongoing management and training of third-party vendors are in place to ensure that vendors are aware of and complying with all bank regulations?
6. Organizational roles and responsibilities—How is the compliance responsibility distributed between marketing, compliance, data analytics, and third-party organizations? How are responsibilities assigned, documented and managed? How are acceptable risk tolerances established that meet risk management standards while also allowing Marketing to leverage digital marketing and media to optimize market and revenue growth? Is there an escalation process in place and documented to allow management to accept any risk that has not been resolved?
7. Documentation and reporting—How are campaign-related risk issues, compliance reviews, and approvals documented and reported? Is there a system in place to archive all the supporting material used to review campaign risk components, identify mitigating factors, and document approvals? Can this material be retrieved easily to comply with examination requests?
The outcome of this comprehensive review is to determine which components of the current Marketing compliance process are working well and which need to be improved, identify specific opportunities to streamline process workflows, and implement enhancements to achieve appropriate levels of risk management while enabling the use of important marketing tools and techniques. The ultimate goal is to design a practical approach and process that delivers the following benefits:
• Consistency—Ensuring that all programs and campaigns go through the same risk identification and assessment process and that the right level and types of reviews are focused on the right types of risk — each time, every time.
• Efficiency—Providing automated solutions and eliminating multiple reviews and duplication of effort to help reduce costs and accelerate speed to market.
• Clarity—Developing clear definitions of risk issues and components, organizational roles and responsibilities, escalation processes and risk-acceptance authorities.
• Documentation—Creating a system to manage marketing compliance-related documentation, report risk levels and issues, and retrieve material needed to support internal reviews and external examinations.
Making enhancements today will avoid problems tomorrow.
The importance of marketing as a primary driver of market growth and revenue production has never been greater. However, marketing professionals are now faced with a whole new array of compliance-related challenges and responsibilities that require new approaches, skill sets, and processes. These challenges will only increase as the use of new media and more sophisticated marketing programs and techniques expand and regulatory agencies intensify and broaden the scope of their oversight practices.
As a result, it is imperative that marketing leadership work closely with their compliance colleagues and take a proactive approach to develop new processes, programs and policies that create a more consistent and efficient approach to marketing compliance-related risk identification, assessment, mitigation, and management.
Roland Johannsen is senior consulting associate at Capital Performance Group in Washington, D.C.
