Don’t Forget That Training is a Pillar of a Strong Compliance Program

Don’t forget that Training is a Pillar of a Strong Compliance Program   

Since regulators first embraced the risk-based approach to supervision of banks, training of staff has been recognized as one of the pillars of a strong compliance program. In its 2002 article entitled “A Banker’s Guide to Establishing and Maintaining an Effective Compliance Management Program”, the Kansas City Federal Reserve Bank discussed the importance of training to a compliance program:

“The importance of having a staff that is knowledgeable of regulatory requirements cannot be overstated. Regardless of an institution’s philosophy and policies, ultimately it is line staff who process transactions and interact with customers. If employees are not adequately trained in compliance matters, errors are certain to occur” [1]

Mark W Olson, Member of the Board of Governors of the US Federal Reserve System, also emphasized this point in his remarks at the American Bankers Association’s Regulatory Compliance Conference.  He stated in part that:

“Training on policies, procedures, and associated controls is a component of compliance-risk management that should not be overlooked. Examiners will determine whether the banking organization’s training program ensures that compliance policies, procedures, and controls are well understood and appropriately communicated throughout the organization. [2]

These are just two of several statements by regulators that make it clear that training of staff is not only important, but that is an essential component of compliance. There must be a mechanism in place to make sure that everyone associated with your institution is kept abreast of changes to regulations that directly impact its operations. In addition, when management and staff have a clear understanding of the requirements of regulations, they are more effective and efficient. While good training will not make up for unsafe and unsound practices, a well trained staff can cover a multitude of “sins”.

The Case for “Live” Training

Most financial institutions these days use some form of internet training to fulfill their compliance training needs.   Online courses are for the most part accepted as the most cost effective way to conduct training for staff.  We would like to suggest that cost efficiency may not ultimately be the most important consideration.  Most compliance programs at small institutions consist of online training programs that allow participants the ability to take tests multiple times until the desired score is achieved.  Unfortunately, a common strategy for the participants is to eschew reading the material, go straight to the test, take it, write down the answers to the questions that they got wrong and then retake the test with answer guide in hand. While this process will help to ensure that everyone has received a passing grade on the training, it does little to increase staff knowledge of regulations. This is not meant to be an indictment of online training programs at all.

Instead, it is a suggestion that a complete compliance training program must have a great deal more.  Consider the nature of compliance regulations. Whether we like to admit it or not compliance regulations have a history of being earned!  For example, Regulation B (The Equal Credit Opportunity Act) was passed to address the fact that women and minorities were being denied equal access to credit.  And the Truth in Lending Act is the result of former banking practices that mislead borrowers about the real costs of the loans they were getting.   Consumer regulations have been designed to address areas that have been proven to cause consumer financial harm

Because consumer regulations are designed to either prevent certain behaviors, collect information on the results of bank practices or to provide complete information through disclosures, a great deal is left open for interpretation.  There are even times when regulations direct that staff must interpret information to the best of their ability (Government Monitoring Information in HMDA).  Often when a regulation is misunderstood, violations result.

We have found that when management and staff alike are given the opportunity to hear a bit of the history of the regulation it makes a big difference in the overall level of compliance.  Knowing WHY a regulation was enacted goes a long way toward understanding what it is that the regulation is trying to accomplish.  Taking this idea one step further, giving staff information on what it is that the current regulation is trying to accomplish goes a long way toward obtaining positive participation in the compliance effort.

By helping to ensure that staff members understand the specifics of compliance regulations, you can greatly enhance the effectiveness of the program.  Staff who understand what it is that the regulation is trying to accomplish can feel empowered.  Whether or not staff members agree with the regulation, understanding it is key.  With the basic understanding of the regulation as a tool, the number of misinterpretations and resulting errors are greatly reduced.

Courses on consumer regulations should at least annually include information about the history and the legislative intent of the regulation.   Optimally, staff will be given the opportunity to work through case studies during the training session as these are very helpful in increasing understanding of the regulation.

Training Can be a Cost Saver
In the area of compliance, the most frequent violations of regulations are a direct result of either misunderstanding the requirements of regulations or ignorance of changes to regulations. Training courses that cover the requirements of consumer regulations are extremely effective in reducing these kinds of violations. While compliance violations rarely result in the closure of a bank, the fines, penalties and reimbursements that result can have a drastic impact on profitability.

Do not Give Training the Axe

Although the examination handbooks don’t specifically say it, the fact that training is listed as one of the “pillars” of the compliance program suggests that it is at least as important as the other pillars.  And yet, for reasons that are lost in tradition, this area often is not treated as an important part of compliance.

Even in the toughest of economic times, training of staff and management is a necessity. Through training courses that are specifically designed to meet the needs of individual organizations, financial institutions can be prepared to meet the challenges of a changing regulatory environment. As one of the most important pillars of a strong compliance program, training should never be considered a luxury!

[1]A Banker’s Guide to Establishing and Maintaining an Effective Compliance Management Program (the Guide). Federal Reserve Bank of Kansas City , 2002

[2]  Remarks by Mark W Olson, Member of the Board of Governors of the US Federal Reserve System, at the American Bankers Association’s Regulatory Compliance Conference, Orlando, 12 June 2006.


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