How do you explain the concept of a paper trail to the paperless generation?
A veteran community bank compliance officer we know—let’s call her Louise—is facing just that kind of challenge now.
Over the years, Louise learned the compliance business from the ground up, and she adapted as the job grew larger. In time, with Dodd-Frank adding so much more to her load, management gave Louise authorization to hire a No. 2. She found a smart young millennial.
Louise isn’t as young as she used to be, and she can see that someday her new lieutenant could be the person to step up into her job. He’s smart, and he’s getting the technical aspects of compliance. But he hates to write anything down. He isn’t big on maintaining files of work papers. He resists too much process. He doesn’t see the need to leave footprints that others can follow, should he be hit by the proverbial bus.
The other thing that worries Louise is that she, like many other compliance officers, has worked hard to build credibility for the compliance department and recognition in her bank that it serves a valuable profit protection role. She worries that her associate lacks the skill set to sit in a meeting with senior management and hold his own to maintain what practitioners today call compliance’s seat at the table.
She doesn’t want to leave someday and watch the ground she fought for given back.
The challenge of generational change affects many bank compliance officers, and their banks, in different ways. Louise attended ABA’s Regulatory Compliance Conference in June.
“I scanned the conference rooms,” she says, “and saw so many new faces. It made me realize that time is moving on, and that we veterans keep having birthdays.”
A whole generation of compliance officer is beginning to pass out of banking, and just as banks have been giving more thought to top management succession, consideration for compliance management succession ranks high, too. This comes at a time of major compliance challenges.
“I guarantee you, I’ve got an RV and a fishing hole screaming my name in the next few years,” says Chuck Lewis, a veteran compliance officer and now vice-president, compliance services, for the Missouri Bankers Association. “And so do a whole bunch of other seasoned compliance people.”
Selling bankers on compliance posts
Bankers who have given compliance succession some thought identify four key areas to consider: the loss of experience; differences in work approaches; finding suitable candidates; and the possibility of changing the bank’s approach to compliance.
But also lurking out there is a more basic recruitment challenge. It’s a double hurdle.
First, the industry needs to regain its attraction for new entrants. “We’re slowly coming back up,” says Lewis. “The industry has to find some sharp young people, make banking look sexy again, and provide career paths for people in the compliance world.”
Second, compliance has to find a way to make compelling a position that requires a lot of very hard work, constant reeducation, and has little popularity inside the bank.
Longtimer Paul Jarosz likes to joke that compliance work made him bald. He’s senior vice-president and director of government compliance at $452.4 million-assets Oxford Bank & Trust, Oak Brook, Ill.
“The daily life of a compliance officer in a community bank is crazy,” says Jarosz, who does a lot to try to humanize the function within his bank. “You come in and expect to review a document, and by 4:00 p.m., you still haven’t gotten near it.”
That’s, in part, because of all the questions that come up throughout the day that have to be fielded. But the time factors facing compliance officers call for adaptability.
“It’s sort of like living in a game of Tetris,” says Jarosz. “Somehow, everything falls into place. Things come faster and faster, and you just learn to put them into the right slots.”
Experience drain—does it matter?
Today’s veterans often started before Federal Reserve regs started around the alphabet a second time. “I remember in 1978, my new, soon-to-retire boss held up Regulation Z and Regulation B—one in each hand,” recalls Lewis, “and asked me to choose which one to start with.” Today, Reg B is just one tab in a fat binder of duties.
Some say that losing that accumulated compliance wisdom will cost the industry something. Lewis is among them. “A newbie lacks the experience of realizing how each regulation and act ties into whatever product or service his or her bank is offering,” he says. “On the other hand, the ability to find the same information that took me weeks or even months to find is right at their fingertips.”
But information by itself isn’t everything, continues Lewis. “Newbies know where to look for answers. But we know what the question is.”
Not everyone places as much value on longevity. “Experience is nice, but the compliance world has really changed so much since 2008,” says Lyn Farrell, managing director at Treliant Risk Advisors. Farrell and others point out that as the scope of what compliance means broadens, experience and background in traditional tasks will mean less.
“Back in the day, it was all technical compliance and checking boxes,” says Chris Spellman of Heartland Financial USA. ‘Now, it is into consumer protection and customer choice and more board involvement and huge technology shifts.” Heartland is a $5.8 billion-assets, ten-bank holding company.
And in a business where being a subject matter expert can be so important, Spellman says even that aspect of compliance will be changing for community bank compliance staff.
“There’s so much change going on that you are not an expert on Reg Z, or what have you, as you used to be,” maintains Spellman, who is senior vice-president and corporate compliance director. “I don’t think people will have time to become experts on things anymore. You have to move on to the next things.”
People skills will still apply, especially with regulators, some insist. “Learning how to handle examiners takes time,” says Anna Rentschler of Central Bancompany, Columbia, Mo., a $10 billion-assets multibank holding company. She says learning how to diplomatically challenge them requires experience. “It is important,” says Rentschler, vice-president and BSA officer, “to know how to say, ‘Why do you ask that? Why is that important?’”
Understanding new approaches
Talking to experienced compliance officers, one finds that there is a tendency to bridle a bit when newer compliance people talk about the work.
“I’m sure we oldsters would consider most of the newbies a little cocky,” points out Missouri Bankers Association’s Lewis. “Wait until their first memorandum of understanding or cease and desist hits!”
Spellman says the older generation is used to a contemplative approach, “working through things,” while the new generation “tends to leap before they think.”
The difference between the paper generation and the e-generation also looms large in compliance. Older compliance people love their paper and their fine print, even though they were early adopters of the internet. Younger entrants are more likely to look for online help, especially explanatory videos and interactive training.
Compliance also has a long history of sharing, even among institutions in the same town. Regulatory compliance has not been regarded as a competitive issue. But the internet search has replaced, for many, the phone call to this or that fellow compliance officer pulled from a Rolodex of a carefully nurtured network.
Some veterans do appreciate newcomers’ technological capabilities. Rentschler is amazed how newcomers arrive as Excel virtuosos, for instance.
“We oldies often do things the hard way,” she explains.
Recruit, develop, or rethink
Developing new compliance talent internally may hinge not only on consciously encouraging people onto that track, but on persuading existing compliance staff to open up. While compliance folks readily share with colleagues across town or across the country, they may not always readily do so at work.
“A lot of people like to feel indispensable,” warns Farrell.
The difficulty in finding candidates outside the bank lies in supply and location. In the Chicago market, says Oxford Bank’s Jarosz, a compliance officer out of work won’t be for long, so strong is demand for skilled people. By contrast, Spellman and others say, markets such as the rural Midwest aren’t as attractive to potential recruits with skills in such demand.
Cultural fit also comes up in conversations about compliance succession.
“Teaching someone how to do the compliance job is next to impossible in two weeks,” says Rentschler. “It’s really important if you can bring someone up from inside—someone who knows the culture of your operation and how things work in your organization.”
If none of this works, it may be time for a rethink of how the bank approaches compliance. The typical model of a single compliance officer handling most or all the task has been falling away for many reasons, among them accountability and sheer volume of regs. Some bankers see the compliance committee approach coming to the fore, in part because it avoids putting all the bank’s compliance brains in one head.
Community banker Frank Campbell, who is president and CEO of $169.4 million-assets Pilgrim Bank, Cohasset, Mass., points out that his bank has long run compliance through a committee, splitting the work. He says examiners have approved of his bank’s approach.
Some say that as retirements inevitably come, some managements will begin outsourcing big chunks of compliance, ranging from marketing review, compliance audit, compliance monitoring, or other pieces that make the most sense.
Assessing where your bank goes may pivot on one last question from Louise: “Is the compliance officer’s job description up to date? And does it truly reflect the evolution of compliance?”