The recent 1LoD Summit, held in the genteel surroundings of London’s Dorchester Hotel, was notable for two particular reasons. First, it was apparent how much this community has flourished since 1LoD held its first conference here just one year ago. Given the growth of controls organizations in recent years, combined with the narrowing of focus on senior management accountability regimes, a packed room of attentive controls and surveillance leaders was perhaps to be expected.
The second reason was more remarkable. An agenda that featured senior professionals running banks, surveillance organizations, regulators, and technology businesses, expressed a striking unity of direction and intent. This was a group that no longer looked buffeted by new regulations. Delegates were instead engrossed in how mastering tougher rules could result in the encompassing goal of cultural change for the industry.
The Global Trend Towards Senior Accountability
The Senior Managers Regime is a part of UK financial regulation that has spearheaded an increasing focus on personal accountability of senior people in the financial services industry. It came into effect in March 2016 and covers both domestic and international firms with UK operations.
Other jurisdictions have since devised similar standards. The Hong Kong regulator, HKMA, introduced its Manager in Charge regime in late 2017. Australia’s Banking Executive Accountability Regime (BEAR) came into force on July 1, 2018. The Monetary Authority of Singapore has published guidelines as it consults on its own efforts to strengthen individual accountability of senior managers across the financial services industry.
Although the United States has not set specific rules, it has seen an enhanced focus by the US Justice Department on individual accountability for corporate wrongdoing. Moreover, the UK and Singapore regimes propose that firms may designate senior managers who are based overseas.
The UK’s Senior Managers Regime, along with similarly intended regulations in other jurisdictions (see box to right), has placed responsibility for risk firmly on the desks of banking’s business leaders. This emphasis on individual accountability has added new impetus to banks’ oft vaunted, but sometimes weakly implemented plans to restore integrity to banking.
Controls leaders spoke about their progress and challenges in driving this change. Regulators spoke about their accommodating attitudes, celebrating best practices and reserving their ire for negligent laggards. Banks and vendors debated progress towards a more comprehensive analysis of human risk, agreeing that a combination of advanced technology and human expertise (blending compliance backgrounds with former regulators and graders) not only improves surveillance but also cements a legitimately credible threat to those tempted to infringe codes of good conduct.
An eye-opening talk by Tom Hardin, a former insider trader known as “Tipper X” (read a conversation between Tom and our founder here) helped to consolidate the collective view that building a person-centric understanding of risk – one that monitors behaviors, not just alerts – is the long term goal. While the technical horizon to genuinely “holistic” approach was regarded as distant, controls leaders anticipated an integrated approach that takes advantage of improvements in audio analytics.
Delegates heard how the latest technology from co-sponsor Digital Reasoning is able to accurately extract concerning language from noisy financial industry audio. Debate around this topic concluded that an integrated approach, that combines a-comms and e-comms analyses, will make better use of analysts’ time and skills.
Controls leaders envisage an integrated approach allowing them to gain leading indicators of human risk, resulting in outcomes such as a watch list of risky people. Awareness of this approach will help to drive the cultural shift that is the ultimate goal. Representatives from the banks agreed that this is a goal shared with the regulators and that, with expanding capabilities that the industry is learning how to use, it makes sense to take this journey together.
For more information about the 1LoD Summit, London 2018, and to read the official report of the event, please visit: www.1lod.com/london-2018