We gave compliance teams and revenue teams a chance to share what they think about each other anonymously.
The names and institutions of the individuals have been redacted to protect their anonymity.
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Head of Compliance at Investment Bank
Relationship managers are bound to text PII
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I’m always reminding them, guys, do you know what the implications here are? Forget the paperwork I have to do. Forget me. Do you realize what an audit would trigger?”
A word that frequently comes up when describing bankers is, “Cowboys.” The feeling among compliance teams is that they’ll try nearly anything if it helps them bring in deals and retire quota, and while it may work in the short term, it neglects the risk to the entire business.
“I’m always reminding them, guys, do you know what the implications here are? Forget the paperwork I have to do. Forget me. Do you realize what an audit would trigger? The loss of reputation to the bank?” said one head of compliance. “These are seasoned guys but sometimes I forward them the SEC press releases just as a reminder.”
Granted, the SEC is less hawkish than other bodies like FINRA, but the reputational damage from charges can be immense, and can follow teams. “Sometimes you feel like it’s not a matter of if but when,” said the head of compliance. “Younger bankers on their phones, you figure it’s bound to happen that they text PII or transaction information, or make a not-entirely true assertion. The best thing you can do is to be tracking everything. You can’t trust young bankers.”
Marketing executive at a global bank
They don’t understand how the business works
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The legal, compliance, and risk people who probably would have tortured us for months, and I say that in a fun, joking way, but they would have questioned the whole thing to death and made us prove it out and put in all sorts of stop-gaps and mitigate the risk.”
The prevailing feeling among financial marketing teams is that if the compliance and risk teams had their way, they might shut down the business. With such a preoccupation on what could go wrong, is there any room for considering what could go right? Is there any room for maneuvering in the market?
“On the one hand, I feel bad for [relationship] managers who are now working from home who have all the same rules and regulations but no access to their workspace,” said one marketing executive. To stay compliant in the office, they simply had to use the devices provided. But at home? Amidst a pandemic? It makes creating client relationships difficult. In particular, relationship managers are loath to spurn a text from a client.
“They know that to build a relationship, especially over distance, they can’t throw up barriers,” says the marketing executive. “I’m sure some text, but it’s not allowed and they’re exposed.”
From this viewpoint, it’s difficult to see compliance teams as any more than inflexible and punitive. When this marketing executive’s bank began exploring a solution to allow texting or calling from any device, the risk-minded departments did not make it easy. It was only when leadership stepped in to shepherd the process along that it was saved.
“The legal, compliance, and risk people who probably would have tortured us for months, and I say that in a fun, joking way, but they would have questioned the whole thing to death and made us prove it out and put in all sorts of stop-gaps and mitigate the risk,” said the marketing executive. “It was only when they got very direct marching orders they finally said, OK, we’ll help see this through.”
Compliance Manager at a major bank
They don’t care how the business works
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Oh, John Q Public brokers, they’ll be fraudulent; they’ll be deceptive. There are always bad actors among your salespeople. You’re never going to prevent that fully.”
It generally holds that the larger the institution, the smaller and the less sophisticated its average investors are. When you get to the size of a major global bank, you need a really strong culture and effective hiring practice or you run the risk of asking the wolf to watch the sheep while the farmer is watching. That is, young brokers with a quota pushing individuals who know little about investing into products that are too risky for them.
“Oh, John Q Public brokers, they’ll be fraudulent; they’ll be deceptive,” said one compliance manager at a major bank. “There are always bad actors among your salespeople. You’re never going to prevent that fully. And if you have storefronts across the country, they’ve got uninformed people walking in off the street. Those advisors are pushing their own proprietary products and that’s really a compliance hornet’s nest.”
Even when these advisors are well-intentioned, exams simply don’t prepare them to know all the regulations, or what’s really on the line. “FINRA is extremely diligent in supervising broker / dealers and their rules and regulations have expanded dramatically in the past 20 years I’ve been doing this,” he said. “They’ll investigate you every three years and come in and nit-pick you to death. You spend weeks with them and it’s literally awful.”
Keeping advisors compliant is increasingly onerous. More channels means more recording and more having to search through everybody’s communications looking for violations, which this compliance manager reminded us is even less fun than it sounds.
“You need a program that saves every single email and text. The firm is required to review those emails—and how boring is that job? And they check that you’ve done it. You search for terms like “guarantee” or “huge profit” to ensure brokers aren’t out there promising clients the moon,” he says. “So give your compliance team some slack.”
Trader at a global firm
We’re always watching our backs
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I guess you might call it handcuffing. A lot of traders would tell you they don’t care but while yeah, you get used to it, compliance teams also create this ambient, neverending stress of, ‘Should I have said that there?”
Strict compliance creates a culture of fear. That’s what several traders conveyed to us, in so many words. All acknowledged that email is “good for most things,” but that they’re constantly running things by other traders to see if it’s okay—something that’s become much more difficult since the pandemic. Because, how do you ask whether something’s okay with a call or message without implying you actually might do it?
“First off, you know that most things, you just do not do,” said one trader, when asked about communicating with clients. “There’s allowed channels and not-allowed channels and you do not mix them up. Things are pretty locked down. You could send an account number or hit reply all and it could be bad.”
This trader, like many, lives on his Bloomberg terminal. “You’re on it 6-5, and then you have the mobile app. You’re in Outlook. Up until a few years ago, we were still using AOL Instant Messenger—pretty archaic stuff. You’re always watching your back, wondering if you can reply to some stuff. I guess you might call it handcuffing. A lot of traders would tell you they don’t care but while yeah, you get used to it, compliance teams also create this ambient, neverending stress of, ‘Should I have said that there?’”
Infrequently, traders see other traders doing the ‘perp walk’—being paraded by regulators before cameras to a squad car. More often, they hear stories of firings through word of mouth. “My friend’s brother was a Barclays trader and he got fired for being on a chain email with people and I don’t even know if it was deal related, but it was with multiple people at different banks. The SEC said in theory that you could be fixing price,” he said.
The really frustrating thing, though, is people sharing things they shouldn’t with you, and being implicated. “Clients and other agents at other banks don’t want insecure communications either. They say, “Don’t tell me things I can’t know!” If you spill sensitive stuff, you endanger everyone and make them look complicit.”
More than anything, if they can’t have safeguards, traders would at least appreciate more certainty. “I’d love more guidance, but I don’t get it. I’m like, is this okay? Is a filing required? Can I say this? Just tell us!”
Chief Compliance Officer for broker / dealer
They only care about, 'Let’s get this transaction done', or, 'Let’s put this deal through.'
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They schmooze customers, read reports … maybe they have to fill out a questionnaire about whether they received or gave gifts, or had any criminal convictions. But that’s kind of it.
When we asked this former chief compliance officer what she thought about the relationship her team had with salespeople, she laughed. “Things are changing. It used to be, forty years ago, they could blow you off. Or they would try to. But not anymore. Compliance is huge now. You might say it’s everything.”
By this, she meant that there’d been an exposure of regulation and compliance enforcement. Digitized everything hasn’t helped. Now that things can be recorded, they should be recorded, and new formats like text or chat fall within FINRA’s ever-expanding remit. In 2019, U.S. financial regulators were more active than they’d ever been. But if there’s one thing that has not changed, it’s relationship managers shirking paperwork.
“You have to understand that these guys are salespeople. They only care about let’s get this transaction done, let’s put this deal through. These were guys who’d been in the business forever and a day who knew their business and they’d moan and groan and rib me about all these things they had to sign,” she recalls. “I’d put something on their desk and they wouldn’t sign it. So I’d follow up and they’d say ‘yeah yeah, I’ll do it.’ Finally, I’d give them a deadline and would.”
Why wouldn’t brokers sign paperwork they knew was critical? Was it a lack of time? No, this compliance officer assured us. It was a mindset. “Their job isn’t exactly hard. They schmooze customers, read reports, and make recommendations, but they don’t actually place trades,” she says. “Maybe they have to fill out a questionnaire about whether they received or gave gifts, or had any criminal convictions. But that’s kind of it.”
But at the end of the day, there was at least an understanding that everyone had an interest in keeping audits short and regulators away. This compliance officer’s brokers were in an elevated space dealing with institutional investors and high net-worth individuals and they understood the risks.
When asked if there were any issues with broker negligence, she said there weren’t. “There was only one time—I missed one thing about how a deal was recorded, got busy, and forgot. And sure enough, four years later FINRA was investigating that person and wouldn’t you know they found it,” she says. “But otherwise, if I told someone to do it, they did it. We all knew what was on the line.”