Ladies and Gentlemen,
As many of you are keenly aware, compliance personnel have not historically been valued or compensated as highly as their revenue producing brethren. I believe that much of the reason for this phenomenon is that compliance personnel are often unable to provide tangible data (such as sales and revenue figures) to support their value to the enterprise. Instead, many of us have to rely on intangible data (such as favorable exam ratings, the lack of regulatory fines and the lack of litigation) as evidence that compliance personnel do, in fact, provide great value to the enterprise. Since it is difficult (if not impossible) to quantify these benefits/cost savings in monetary terms, some of us are not easily able to make a compelling argument that we provide great value and that we deserve adequate resources and compensation for what we do. Consequently, we are often treated like second class citizens until our institutions are subject to regulatory/compliance, financial, or reputation risks, which are expressed in terms of hard dollars or opportunities lost.

I am posting this topic to solicit thoughts on how to demonstrate the value of the compliance function. I am interested in personal examples that have worked for you, as well as any articles you have read on the topic. Any help you could provide would be much appreciated.

Thank You,

Jeff

I hope that someone does chime in with valid input, but let's face it, operating people are in the same boat as compliance people. In fact, anyone that is in a position that does not regularly produce revenue is on the expense side of the ledger and, frankly, all you can do to promote your value is a good job, including securing good ratings when regulators come around.

Of course, there is an enormous downside when compliance matters are not effectively managed, but it's hard to see how that downside can be used to effectively demonstrate the value of the compliance function.

In the BSA field, there are 2 words right now that should demonstrate the value of an effective compliance program and what can happen if one is not in place:

1. RIGGS
2. BANK

Beyond that, the only time that Compliance is valued is after an institution suffers through some very poor exams.

Sometimes you get lucky and find ethical management that values proper effective and efficient internal controls of which Compliance is one of the controls.

And you can also provide a multitude of instances from OTS, FDIC, OCC, etc. to demonstrate that "non-compliance" will be a huge expense.

So, as opposed to "making" money for the bank, I would try to get them to look at it as "saving" money for the bank.

I do send copies of C&Ds & CMPs to our BOD on a regular basis, to emphasize the costs of non-compliance.

The value you provide isn't very tangible, so it's a tougher thing to sell. But it's valid and it's real. It's mostly about good business practices and smart strategies.

While the compliance program does not generate earnings, a good compliance program focused on managing risks protects those earnings and helps eliminate unbudgeted expenses. Senior management and the Board typically don't like surprises. If they're going to have expenses, they'd like to budget for them and be able to include them in any projections. You should be showing them the broad range of areas in which the compliance risk management program identifies problems while they're still small and prevents them from turning into large surprises that involve expensive remedial action. Often times the expenses that your program can prevent are the soft costs as opposed to actual cash expenditures so they don't show up on the bottom line. Because of this, you should emphasize that all the hours that would be spent on large scale unexpected clean-up projects would add up to a lot of lost productivity that could have been better spent on making sales or on supporting the people who are making the sales.

When you make them aware of all the different functions and areas of the bank that your program covers you should make sure you don't just emphasize the audit/police work. Your involvement in looking at new procedures or new products is valuable because you help them make sure things are designed properly up front so the bank doesn't incur the cost of changing them later which could involve expenses related to retraining employees, modifying disclosures, sending notices of changes to customers, and sometimes reimbursing those customers in the process.

Also, whenever a change impacts the customers, the bank runs the potential risk of eroding customer confidence. So, not only is the compliance risk management program protecting the bank's earnings and financial assets, it's helping protect the bank's reputation, which in a very competitve market could be one of the bank's most valuable assets.

If you haven't seen this before, this might be a worthwhile read for you (or your bank's CEO). It's the spring 2003 ABA Banking Journal national compliance officer survey. It's a fairly graphics-heavy PDF document, so it may take a bit longer than expected to load...

Sometimes you get lucky and find ethical management that values proper effective and efficient internal controls of which Compliance is one of the controls.

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Now that's the bottomline. If you feel you have to somehow convince management of the value, it's a long hard road with little chance of a payoff for your efforts.

I am a Compliance Officer, Internal Auditor & Security Officer. None of these titles generate income for the bank. About the same time that I came to work for this FI, they also hired a Collections Officer. She immediately went to work repoing cars and boats and trucks and really generating some income for the bank. Even though we were hired at approximately the same time with approximately the same experience, guess who makes the higher wage? Fortunately, I really like my job(s) and the people I work with. My counterpart, on the other hand, is highly stressed and has to deal with some not very nice people.

I am a Compliance Officer, Internal Auditor & Security Officer. None of these titles generate income for the bank. About the same time that I came to work for this FI, they also hired a Collections Officer. She immediately went to work repoing cars and boats and trucks and really generating some income for the bank. Even though we were hired at approximately the same time with approximately the same experience, guess who makes the higher wage? Fortunately, I really like my job(s) and the people I work with. My counterpart, on the other hand, is highly stressed and has to deal with some not very nice people.

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And that is the other bottomline - You've have got to like the work. If not, go for one of those revenue generating positions as a Compliance person would have a lot to offer in practically any revenue generating field in the banking world.

In my mailbox today is the ABA Bankers News from 8/31/04 (I get it 2nd or 3rd hand from Senior Mgmt.) The first article is titled, "Compliance and the Bottom Line: A Cost Center Becomes a Revenue Generator." If you can get your hands on it, it is a short, but interesting read.

I agree with Bonnie and Paragon that mgmt makes the difference. (Luckily, I have their support!) However, even with good mgmt, they need a little reminding once in a while. This article is just short enough to hold their attention.

There is a way to tie CRA data relating to LMI areas and individual customers to marketing efforts. Knowing what services LMI customers do not have and their propensity to purchase additional products and services makes it easy to market to LMI areas and individuals.

This turns CRA data into Marketing data which makes CRA a profit generating center and adds to the banks CRA activity. Check out our website or call.

Quote:

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And that is the other bottomline - You've have got to like the work. If not, go for one of those revenue generating positions as a Compliance person would have a lot to offer in practically any revenue generating field in the banking world.

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What a nice thing to say, Thanks.

And, thank you.

By the way, as Don Narup noted above, presenting data that can be used by those in marketing and revenue producing areas is an excellent way to sell your value. Product or service structuring that uses compliance as a resource versus a reason not to do something are opportunities that should be pursued whenever possible. Take SVP CubDave for example, there is every indication that he looks for ideas within the BOL threads. He's a marketing type that knows that Compliance and Operating people can come up with ideas and insight that can assist him in many ways. Once a Compliance person gains the reputation that they can contribute to product and service structuring, as well as audit stuff, the playing field gets a little more even when it comes to salary and benefit dollars.

I agree with Don. Compliance has been viewed simply an expense to a bank for so long it is going to take an educational effort to show upper management that when compliance and marketing work together it can become a real asset. Banks have to realize the value they have in compliance data. For too long banks have stressed that new customers are the way to grow. BUT - statistics prove that it costs almost 5 times more to bring in a new customer than to cross sell an existing one.
When management wakes up they might start to embrace the value of existing customers.

I appreciate all the constructive comments that have been provided thus far. Having been a bank and trust examiner for 10 years and a compliance officer for 6 more years, I can say that I still enjoy my job and the company I currently work for. I made the post, in part, because I just lost an extremely talented member of my staff because the company was not willing to pay a salary remotely close to what the local market would bear. I guess this was the catalyst I needed to engage the other side of my brain in an effort to demonstrate the value of the compliance function.

I look forward to comments and suggestions from others.

Back around March of this year there was an article in one of the major banking publications (ABA Banking Journal or American Banker?) that surveyed banks around the country asking what positions are currently the most difficult to fill. Compliance Officers were listed as #1. We're a hot commodity! Some might say that it's because so few people are willing to do this type of work, or because banks aren't willing to pay very much. I don't know. But I think it means that the respect and salaries paid to compliance professionals should increase as a result. Compliance and Risk Management are still a growing field. The level of professionalism expected (and delivered) keeps increasing.

Maybe someone else remembers that article and can tell us where and when it was published.

I found the Nationwide Compliance Officer Survey in the ABA Banking Journal from June of 2003. I assume you are referring to something else?

Jeff

I have been in some type of compliance function for over 20 years (Yes I have gray hair). In most positions, I helped turn around existing issues and facilitated very good audit results from multiple sources. As a result I would gain more income. Most jobs I walked into were having problems, none were a one rating or what ever an agency was happy with.

Even at my current job, I came in as a cleaner-upper. As part of negotiations, I stated I would guarantee a specific rating -- if the bank made it-- I earned a salary increase of X and a bonus. Goofy me though I knew where all the dust bunnies were. Heck I had dust monsters in the compliance world. But somehow I kept my promise and I got the money.
Now I am not foolishly saying I did it on my own. I created work teams, coached and coached managers and employees til I fell on my face. At the end of the exams I was exhausted. Yet I convinced the bank they could turn it around. They began believing in themselves. Now, my staff has expanded, I have assumed various responsibilities and functions. I am crazy and I love compliance.

A long time ago a mentor explained that what I was seeking was the same as in a manufacturing plant. We are looking for quality and conformance to product specifications. The cars and trucks are our services and products. Creating and managing each area is like building cars, widgets or what ever. There specifications, builders, engineers, etc. There are parts and pieces that must meet spec. You have quality reviews and such. I have taken many classes on Total Quality Management systems. They can apply to banking. I took TQM theories and applied them to compliance mangement systems. There is a specific lifecycle to the program just as there is to TQM programs.

Part of my recommendations is looking at your operations and comparing and building a parallelism to those that make money. Read all the articles and such that are out and find the material measurements. Create measurements of the facilitation, the training, the audits and such that you do. Show the improvements that departments or people are making as a result of your compliance performance -- I just met with the board and that is what they are asking for and expect. Doing so justified a huge increase in my staffing. Also document where program is and where it should be. Define how to get there.

I'll stop. I am sure I sound crazy....I am. The bank staff tell me I am the most unusual compliance officer they have ever met. But now they are thinking on their own. It is like watching baby birdies fly from the nest...

Now my life has been spent helping guide and facilitate financial institutions do things that interfer with making money. I have not had the luxury of any employer being a number one rated bank when I walked in. If you have that then my hat is off to you.

I would be interested in seeing the same.

This is to the last Anon in this thread. Thank you for that insight. Your analogy is great!

Mind if I use it?

Most of my references pertain to HMDA and Geocoding.

There are many examples where integrating geocoding into the loan orgination process helps quickly identify low and moderate income census tracts. Mortgages in those tracts may qualify for additional "points".

Some benefits are not explicitly from compliance functions, but from secondary use of the data. For instance, mapping the geographic distribution of accounts or loans can assist market research.

If CRA is part of your compliance department and you're trying to show value in a monetary way, those folks should be able to easily document their contribution to the bottom line.

In my line of work I come across opportunities for the bank to invest (booked a $6MM deal a few weeks ago) as well as to lend using special loan programs like Title Six, HUD 184, FHLB Down payment programs, commercial etc. Many of these clients come to me first before approaching anyone within the bank because of a conversation at a meeting, convention, cocktail party, etc. I also come across people and entities that I'm not even thinking of in regards to CRA, but they might want funding for a new building, yacht or home purchase; say a member of a board I serve on.

These are all tangible deals booked on behalf of the bank. I sent out a Title Six loan to HUD today, convinced another entity to give a lender a bid on a $10MM loan when he couldn't get his feet in the door, submitted an application for a $1MM line for a non-profit I serve on, and have a $1.5MM trust referral in. This is not an unusual days work for me. I also have something like 30 folks in line for mortgages using FHLB programs I've applied for on behalf of the bank, at any one time. I write grants for clients that sway million dollar deals over to our bank due to my skills in that area...the list goes on and on.

So, as I mentioned, if CRA falls under your compliance wing, be sure to add in their numbers. If they're not generating any...well consider revamping your program or your CRA officer