Bank Compliance: The Case for Automation

The size and purpose of government – and regulation – has been debated since centuries. On the one hand, we want markets, firms and individuals in these markets to act and move freely. On the other, we see that if we do not regulate behavior, people make decisions that might have detrimental effects on others, on firms and even markets.

Most agree that some regulation of banks is necessary. The challenge for banks is how to balance the seemingly ever-increasing number of compliance issues with the running of the bank. The costs are horrendously enormous, but the costs of not complying – as we witness through fine after fine on the big banks, are even greater (e.g., J.P Morgan’s $13 billion fine from last week) – not to mention reputation lost.

Number of Compliance Incidents to Level of Regulation









If we look to experiences in other industries such as health care, where compliance to safety rules can literally mean life or death, we learn that the number of incidents is a curvilinear function of the level of compliance required plus the importance placed by management on compliance issues. In firms where management places a high priority on compliance (the solid line), there are fewer compliance incidents than in firms where management has placed a lower priority (dotted line) on compliance and regulatory issues. Note that this holds true in the case of low or high degree of regulation and in fact, holds more true when there is a high degree of regulation as today.[1]

As the level of regulation has reached the far right of the graph, and will continue to do so over the next years, what can banks do in order to slow down the increase in compliance incidents? A) insure that management is a role model with regard to compliance; and B) automate compliance as much as possible.

Despite rumors to the contrary, client advisors will take on the responsibility for adhering to compliance issues when asked to do so by a legitimate authority.[2] Most bankers follow the rules, but controls are often lacking or inadequate. And unfortunately it only takes one «rogue trader» or incident to damage the reputation of the entire firm. Yet if management is not legitimate, nor compelled to follow regulation or compliance rules themselves, we need a back up solution that protects everyone: automation.

On the one hand, if automation of compliance undermines the fronts’ commitment and fosters dissatisfaction, it follows that it also limits innovation, since employees in formalized settings such as banks have little motivation to contribute to the complex non-routine tasks that constitute innovation. On the other hand, if we assume that work can be fulfilling, rather than a disutility, the increase in compliance can be experienced as a cooperative endeavor rather than an abrogation of individual autonomy – especially between client advisor and the client. If client advisors see at least some overlap between their personal goals and that of the firm as a whole, they might also welcome the potential contribution of a more automated compliance culture because it helps them be more efficient (e.g., letting client advisors only see the permissibly sellable products a “product rule engine“ set within the core banking system).[3]

By automating as many compliance functions as possible, banks can in effect totally avoid the whole discussion of whether their organizations are „enabling“ or „coercive“ with regard to compliance issues. By logical deduction, if compliance is fully automated, that enables client advisors to focus more time and thought into delivering on their clients needs and preferences rather than the growing administrative burden compliance places on them. And there are, again, the huge cost issues which are mitigated by automation.

From many other knowledge-intensive, innovative industries that are also under competitive pressure to improve sales, reduce costs, increase timeliness, improve quality (i.e., in banks equivalent to complying to regulation) and still delight clients, we learn that to create a compliance culture, first we need to change what people do, not how they think. Culture changes as a result. The old method of trying to get everyone on board and then act accordingly does not work – especially in a world where compliance issues grow according to Moore’s law – and most employees cannot fathom their reasoning. It is easier to get client advisors to act their way to a new way of thinking than for them to think their way to a new way of acting. And, again, their job as advisors and salespeople is made considerably easier by automating the vast majority of compliance.

Automation of compliance for the front has the following advantages for client advisors, team heads, and ultimately clients:

  • It makes it difficult to make mistakes, e.g., selling a product that is not authorized for a certain domicile or risk-profile, or not according to the asset allocation plans of the client;
  • It makes it simple to identify problems when they arise and when a mistake has occurred;
  • It makes it easy to report to auditors and regulatory authorities;
  • It makes it easy in the regular course of work to notify a manager or compliance officer about a mistake so everyone together can quickly decide how to handle it.

Clearly, banks must properly communicate what employees need to do and not do. Banks must enable their employees to perform successfully, building the carrot (automation + remuneration) and the stick (threat of penalties {remuneration} if they intentionally or repeatedly misbehave) into its processes. Automating compliance makes it simpler for them to perform, simpler to see mistakes, simple to resolve problems and simple to learn from it all. Everyone benefits: the bank, its employees, and mainly, clients.


[1] Cf. Katz-Navon, Tal, Naveh, E. + Stern, Z., 2005. Safety Climate inHealth Care Organizations: A Multidimensional Approach.. Academy of Management Journal,  Vol. 48, No. 6, pp. 1075-1089.

[2] CF. Tyler, T. 2011. Why People Cooperate: The Role of Social Motivations. Oxford: Princton University Press. ISBN: 978-0-691-14690-4.

[3] Cf. Adler, P. + Borys, S. 1996. Two Types of Bureaucracy: Enabling and Coercive. Administrative Sciences Quarterly, 41: 61-69.


The Best Companies for Leadership

There are lots of rankings about what the best firms do with regard to leadership, developing leaders, etc.

The latest research from the Hay Group in their study The Best Companies for Leadership is interesting, but does not surprise me.

Regarding two critical issues, people development and innovation: the top 20 firms are significantly ahead of the pack. Have a look at the results for yourself. 

Lot’s of questions arise, such as the absence of certain important industries, or the reason for the dominance of US-based firms. Makes you wonder what firms are focussing on …

Again, the cultural issues would seem to be low-hanging fruit. This study is yet another proof that cultural issues are the easiest topics to talk about, but the hardest to master.

Remember: the soft stuff is the hard stuff… 


The Best Companies develop, motivate, engage and enable employees

Top 20

All other companies

Actively manages a pool of successors for mission-critical roles

85 percent

55 percent

Leadership development programs better enable employees to deliver on my company’s goals/strategies

84 percent

62 percent

Leaders work hard to connect people with projects that are personally meaningful to them

82 percent

61 percent

Senior leaders personally spend time actively developing others

74 percent

48 percent

Provides employees access to resources for innovation, even though success is not guaranteed

68 percent

47 percent

Leaders have the ability to generate personal and organizational loyalty

84 percent

67 percent


The Best Companies emphasize innovation

Top 20

All other companies

Provides structured opportunities for younger employees to promote innovative ideas to senior leaders

71 percent

54 percent

Treats failure (after a good effort) as a learning opportunity, not something to be ashamed of

72 percent

59 percent

Views employees in new start-up or innovation areas as having equal importance to those driving operational improvement

80 percent

56 percent

Provides employees with creative challenges rather than narrowly defined tasks

78 percent

62 percent

Culturpreneurship: Lessons from Eagles


Culturpreneurship is the art of leading an enterprise possessing initiative, world-class innovation and an above-average risk-appetite by effectively integrating the corporate culture of the firm.

In my recent article, The Smell of the Place, I asked the question of whether your firm smells like old running shoes or roses. You know intuitively what I mean. And yet, even when the culture is rosy, culture alone is not a sufficient ingredient for success. It takes having the right mix of creativity, innovation and entrepreneurship as well.

Innovation is a sub-set of culture. Innovation is not technical. Innovation is centered around the process of idea creation. It is about creating something new: a process, a product, a service. Innovation is about providing the right environment – it is a cultural tool. All firms are attempting to increase productivity, decrease costs, create new products and services in order to delight clients – in order to make more money. That is the name of the game. Lots of internal innovation labs are turning up. Under Armour has built a secret innovation lab to test new products. Credit Suisse has its Innovation Factory. I could list countless examples of how firms are putting a wrapper around innovation in order to orderly process how innovation gets done. You might be thinking that this defeats the issue, putting order around idea generation, around creativity. The trick is doing it lightly – adding a touch of discipline to corporate culture in order to promote culturpreneurship. Hiring a “Head of Innovation” won’t create value – unless the organization is freed up culturally to be able to innovate (read: make mistakes and not get fired for it).

So, what do firms do with all these ideas they are generating in their “labs” and “factories”? How do you take an idea and get it to market? Being creative or innovative is not enough. It takes grit, determination, risk-taking, that “out-of-the-box” thinking, and mainly decisive action to get an idea from a lab to the market.  Anyone can generate a great idea. Only a few have an idea that will generate a ton of cash for your firm. In-company entrepreneurs are those courageous women and men who will take on the risk – even personally – to ensure that their idea actually gets to market.

Recently, I had the opportunity of working with a large bank regarding a new service they wanted to offer clients. I asked the head of the division with whom I was working: are you willing to bet your career on this? Because if you fail, it will cost you your job. His immediate response was: YES! He and his team had an idea of how to better process information on behalf of their clients. They developed the idea, they tested it thoroughly, they convinced the sales teams of the benefits. They worked day and night across divisions to make it happen. And then, the most critical test of all: they implemented it as a coherent team – almost overnight. The firm provided them with a culture allowing them to step out of their comfort zone in order to make a difference. Yet, it took both professional and personal risks in oder to get the idea to market. Everyone involved realized the most important aspect of culturpreneurship: it is not a nice to have, it a non-negotiable component of growth.

This is culturpreneurship in action.

We need to regularly and critically look at other industries and other disciplines to see how new ideas, processes, and products are generated. The natural world around us can teach us many things about running our businesses – specifically about culturpreneurship. Observing a naturally evolved algorithm is much more efficient than an creating an artificial space by force. I’ve been studying eagles for the last few weeks, and we can learn a lot from them:

  1. Context and Environment. Eagles typically live near water, favoring coasts and lakes where the fish are plentiful. They naturally live in an environment that will allow them to survive. Is there a deep and inherent cultural river of innovation and entrepreneurship across your firm or is innovation treated as a project or delegated to some “innovation department”? A culture of innovation must permeate the entire firm, front to back, not be led or managed by a few individuals. Context matters imminently.
  2. Get them hungry. Eagles stop feeding their young as the first step in teaching them to fly. Get them hungry and they will move. Don’t get me wrong, I am not promoting you stop paying your most precious resource. I am encouraging that you create an environment where your people are hungry to grow, to create, to innovate and to act as entrepreneurs on behalf of the firm. Everyone should be encouraged to suggest and implement change, new ideas, products and services in order to differentiate your firm from your competitors. Create a hungry culture and change will happen – fast. As Jim Carrey puts it: Desperation is a necessary ingredient to learning anything, or creating anything.
  3. Give them space. Eagles stop sleeping in the nest with their offspring as the second step in teaching them to fly. Eaglets need the comfort and warmth of their parents. Yet, in oder to teach them to fly, an eaglet must learn that their parents can’t fly for them. Allow your people to figure things out for themselves, allow them the space to think for the firm and for clients. Leaders: listen to your people. If you give your people the space and freedom – the authority – they will be culturpreneurs.
  4. Lead by Example. Eagles learn how to fly from their parents in order to survive. Eagles fly in and out of the nest constantly over many days teaching their eaglets that this is the only way to get food – to leave the nest. The eaglet observes that it is natural behavior to fly in and out of the nest. It has been known for eagles to fly by the nest with their claws full of fish or fresh meat, teaching the eaglets that the only way they are going to eat is to get out of the nest. Our leaders must lead by example and create and constantly promote culturpreneurship. Do it. Flaunt it. Others will follow.
  5. Push them. The eaglet’s parents literally push their offspring out of the nest to teach them to fly. Sometimes, pushing people out of their comfort zone is in their best interests – and that of the firm. Just like an eaglet will never learn how to fly unless pushed out of the nest, how to fly, some of our people need a swift kick to move as well. Others just need the space to do it. Whether using a carrot or a stick, push your people out of their nest. Consider including this in your firm’s MBO process!
  6. Manage it. The eagle parents don’t just sit back and wait for the crash landing of their young after kicking them out of the nest. With an amazing grace, they fly under the eaglet, creating a aerodynamic lift to keep the eaglet aloft – giving the eaglet the feeling that it is flying alone – until it really can. Read that again. That type leadership. mentoring and coaching takes phenomenal finesse. We all want to have the feeling of “I did it !”, but the firm also needs to be there when we have crash landings. And if we dare to fly, we will crash, 100 percent guaranteed. But if know that we will not be getting an automatic discharge for promoting positive change, then we will be more willing to do so over and over.
  7. Let them fly. Once an eagle learns to fly, it can reach speeds of 70 kilometers per hour. And in a very short time, it can feed itself. Anyone who has been able to successfully implement their idea and have it create value for their firm will tell you stories of empowerment, ownership, and continued success. Once your eaglets have learned to fly, they will soar.


What is your Calling ?


This past weekend, I was in the mountains with a group of men. I had the opportunity to talk with, let’s call him, Mike, 24, who despite having recently completed his studies and has a good, steady job with a global firm – is deeply unhappy. Mike unabashedly informed me that he has no idea who he is nor what he should do with his life. Mike is not alone: so many people don’t know themselves enough and do not have a systematic plan for coming up with the answers. On the other hand, if it were as simple as that, more people wouldn’t be in the predicament that Mike is in.

As we talked, I found out a lot about Mike in just thirty minutes. Mike unsurprisingly doesn’t like his job – it doesn’t fit his deep interests, his passions. He complained that 80 percent of the time, he is doing things that he is either not good at, or doing tasks in which he has no interest. He told me that he chose his major at university, because it “sounded good”. Mike complains that his work colleagues cut corners, lie to each other and clients constantly – and worse, that he is beginning to as well. Finally, Mike grew up in a farming family. He is used to driving tractors, milking cows, harvesting apples in the Fall. He is used to the outdoors and his current job requires him to sit at a desk all day.

Mike’s final statement to me was telling: “I’m 24 and I feel dead. Is this it?” You might be smiling and thinking, what’s with this guy? I was thinking: why are there so many Mikes out there?

Well, Mike, you’re not dying, I told him. But it to find your true vocation, your calling, requires sweat, work and possibly tears along the way. I told him that I would be wiling to walk him through a process that, although seemingly quite general and harmless, just might change his life, but only if he really is ready to invest in himself.

Finding your calling involves knowing yourself. Deeply knowing yourself. Knowing what you can – and cannot do. Knowing what drives you – your passion. Knowing what you stand for – understanding your cultural heritage and moral convictions – what you will and will not do. And it involves knowing your needs. Your calling is the sweet spot where all of these major factors meet.

The tools are simple, like a surgeon’s knife. But used properly, they cut to help. Help find what makes your heart and soul tick, what your head was meant to do, and what your hands should be busy with all day. And then, when you have begun to better understand yourself, your passions, talent, conscience and needs, have the courage to change.

Be brave in finding and following your true calling!

Client Centric Business Models for Swiss Private Banking

ClientCentric Business Models for PB

This is the latest work on client centric business models for Swiss private banks. It will appear to be obvious, simple, too simple in fact. Our research shows that, whereas some Swiss private banks have made huge strides toward becoming more client centric, there are still “miles to go before they sleep”.  In fact, most Swiss banks do not have the horsepower to pursue all three models simultaneously, and are best advised to focus on the advisory stream, streamlining their product and service offering, while enhancing their distribution and communication channels significantly via social media, and e-channels.

Part 2 of the research will focus on human capital and communications aspects needed to enhance each of these models.

Part 3 of the research will focus on a combined model for the top 4 Swiss private banks and provide a review of their progress on the combined model.

Successful inno…


Successful innovations change the people that use them. When you are asking yourself if your firm is innovative, ask the question: who do you want your customers to be by enhancing innovation. If your answer is: increase sales, then you firm is probably not that innovative. If your answer is, we want to change our customers’ behavior, you might be on the right track!