The Future of Conduct and Compliance in Australia

As the final report of the Royal Commission into banking lifts the veil on a history of malpractice within the Australian financial services sector, there are some significant changes occurring out there. The focus of the commission was on conduct, shining a light on the treatment of customers by Australia’s largest financial institutions. The findings have been far from favourable.

Additionally, in the wake of the $700m enforcement action vested upon the Commonwealth Bank of Australia (CBA) by AUSTRAC last year, the financial crime compliance functions within the banks have been shaken to their core.

Over the past year, three of the Big Four Australian banks have established new financial crime leadership teams (and in some cases, Chief Risk Officers), often bringing in fresh talent from overseas. Millions of dollars have been spent on consultants, largely focusing on identifying weaknesses in the operating models of the compliance teams, including reporting lines and accountability structures. The ownership and management of regulatory risk within the banks is being redefined.

Alongside these operational and strategic change programs, under-performing – and yet highly expensive – financial crime compliance technology suites have also now been brought under the spotlight. Patches, fixes, upgrades and extensions are underway to keep the wolves at bay, and beyond this tactical remediation work the banks now have a sharp focus on building towards a a progressive future state.

A Lack of Visibility

Whether we are looking at the findings of the Royal Commission, the AUSTRAC enforcement action at CBA, Australia’s involvement in the global markets rigging scandals or any other issue which comes out of the woodwork to haunt the banks, the root cause is a lack of visibility and therefore control. That said, culture too plays an important part in all this.

Stories about our banks facilitating the laundering of drug money, rigging FX rate benchmarks and ripping off customers don’t paint a pretty picture. However, anyone who works in the industry understands that the problem is far more complex than willful dishonesty at the top table. Knowing what criminal activity or misconduct is going on beneath the surface sounds very simple but is in fact extremely difficult to achieve.

Tier one banks are big, complex, well-funded organisations which have seen fast and furious (but sometimes disorganised and chaotic) growth. In the same way that organs and oxygen make life possible for humans, technology and data do so for modern banks. The result of many years of investment in technology and burgeoning growth is a mind-boggling and highly complicated technical landscape with vast data integrity challenges. In this digital labyrinth, simply gaining an accurate holistic view of an employee or customer, as well as seeing the extent of their behaviours and connections (let alone properly understanding them), is like solving an insurmountable puzzle, where every tiny move costs big bucks and takes time.

When you start to get your head around the scale of this maze of data silos and then layer on tens of millions of customers, tens of thousands of employees, countless products, billions of transactions and an endless tsunami of complex and often ambiguous regulations, then the lack of visibility which modern tier one banks struggle with becomes easier to appreciate.

So where do we go from here? Starting again and rebuilding the bank is not an option.

The Future of Modern Banking in Australia

The good news is that recent innovations in the way big data is used are enabling the world’s largest banks to stitch all this complexity together, resulting in a holistic and dynamic view of customers, counter-parties and employees across a myriad of disjointed internal systems and external data sources. This provides the banks with an amazing platform to deploy artificial intelligence and advanced network analytics across a connected fabric of systems, allowing them to truly understand the behaviours and relationships within their data. When behaviour is surfaced and understood, visibility and control are regained.

Finally, we must also remember that despite the recent difficulties, our banks are full of intelligent, motivated and talented people, the vast majority of whom have good intentions. If we arm them with the right technology and give them access to the right data at the right time, then the prospects of an embattled sector start to look more promising.