Good compliance starts at the top

Alex Gray, Head of Trade and Transaction Banking at The London Institute of Banking & Finance, explains why good, fair and responsive staff management is the bedrock of excellent compliance in trade finance

In trade finance compliance, getting the details right matters. Regulators around the world, the financial institutions involved and, of course, bank clients, have a keen interest in ensuring that trade transactions do what they are designed to do: ensure timely payment and prevent fraud, all in line with constantly changing international regulations. As that suggests, there is always the potential for a mistake to cost the bank a great deal of money and put a major dent in its reputation. That threat, in turn, can put a lot of pressure on staff.

There are many tools that banks can use to improve their compliance procedures – not least technological fixes. And, yes, trade banks have digitalised many workflows, and will digitalise many more, but manual data processing is still needed. And, as digitalisation progresses, the work that is left for trade staff to do will involve careful judgement. That means that the individual decisions to be made – say on sanctions or if a transaction is fraudulent – could carry more weight than they would have done in the past. So, still plenty of pressure on staff.

Sharing the load – and the learnings

In the drive to digitalise and to optimise the complex business of trade finance compliance, what can be overlooked is the importance of easing pressure on staff with the right culture and the right management approach. Staff in trade banks who have been correctly trained understand they have to get things right. But it’s not always the case that managers understand how to help them get things right.

The first issue for trade finance teams is that intense pressure to avoid mistakes can, itself, trigger problems. Staff on the frontline are rightly worried about missing things. It’s easily done. The phone rings with a client query, or a colleague asks for something and, when you turn back to your screen, you’ve lost your original train of thought – and something slips through. If you are working in a blame culture, where managers want to have someone to criticise for every error, the focus of a team quickly shifts away from doing your best for clients to doing your best to dodge flack.

Of course, banks don’t rely on a single check. There is also the second line of defence. But no-one wants the second line of defence to find fault with their work. The instinct is to try to cover up a slip. The reality is, though, that errors are actually an opportunity for everyone to learn how to do things better. That includes the people who make up the second line. If the group regularly sits down to talk through errors – without any naming and shaming – everyone gets the chance to improve their awareness of potential pitfalls and to learn from others’ experience. That also boosts job satisfaction. Further, any weaknesses that need specific training can be picked up because staff will also be much more likely to flag up problems, rather than hide them. in environments where people have quickly covered up errors in the hope that they will just go away. Even when it’s explained to them that this is like leaving an open wound untreated, they can struggle to be more forthcoming about what they perceive as a personal failing. What to do? while the other one gets grapes does not respond well. Clearly, bank staff won’t be as frank about their annoyance as the monkey if they feel they’ve been treated unfairly, but that doesn’t mean it won’t be a problem if you want to build a truly co-operative team. What’s more, it won’t be just the underpaid staff who feel that things are wrong. Those who benefit can also feel the sting of the unfairness and see their performance decline. [The odd thing that happens when injustice benefits you - BBC Future].

You can’t change the culture of a country, but you can have some control over the culture of your firm. First, you need to find out whether people fear that the firm will use mistakes against its staff – say as a lever to get rid of people, or as a way to cut bonuses. That sort of anxiety is more than a problem for an individual – it affects the team as a whole. If people fear retribution for mistakes, they’ll keep them quiet. If people don’t feel they really belong, they work less hard.

The bottom line is: if you want really good compliance in trade finance – and that is the backbone of the business – there are a few questions you need to ask.

First, can everyone trust the manager to do what is right for the firm in a fair and professional way? Second, will the manager put mistakes into context and treat honest errors as an opportunity for everyone to learn? Third, will all contributions be respected and rewarded with room for training and progression?

If that list sounds like utopia, it shouldn’t.

Compliance is too important to allow anything except the highest standards and those standards start at the top, with management.

Trust and transparency across cultures

But what about collaborating with other institutions, or people in other cultures? Trade banks, by definition, work across borders and there are cultures in which making a mistake is not seen as an opportunity to learn and improve but as a personal failing best hidden. I’ve worked

Then, you need to look at remuneration. If you want everyone to work together to make the team as good as it can be, everyone should be rewarded in a way that is considered fair. There’s an entertaining TED talk by Frans de Waal, a Dutch primatologist, called ‘Two monkeys are paid unequally’. It’s not a spoiler to say that the monkey that gets cucumber

If nothing else, it’s also just common sense that people who are in a good place and being treated fairly and properly, who are well-trained and supported, work better. And facilitating better work is what leaders are there to do.