How (NOT) To Manage Regulatory Enforcement

HARD WON LESSONS FROM MANAGING A GLOBAL BANKING INTERVENTION

Rumours had been growing for a few hours. They were confirmed when our CEO called an urgent meeting. The Regulator was visiting tomorrow and wanted to see a few of us.

It wasn’t a courtesy call.

Ominously, copies of a long letter received earlier in the day were circulated. Eyes Only!

It was an Enforcement Order and whilst littered with unfamiliar phraseology, I didn’t need our GC’s guidance to understand the gist.

Cease & Desist. NOW.

"But stop exactly what? Where are the boundaries? How can we possibly do that in this short time? How can we resource this ? It’ll destroy the business. What are our options? Who do we talk to? Appeal? Who are Promontory?"

Like most of us, this was my first direct experience of Regulatory Enforcement.

Thankfully our CEO, who by no coincidence was also a barrister, was far more seasoned.

She knew what to expect. The Challenges we would face. How to Plan. What to Say. What to Do.......

Thank goodness.

We still made mistakes. Some grievous. But with time, trust and effort, we got through it.

Much of the pain could have been avoided if we knew then what we know now.

Trouble had been brewing for some time but her predecessors had neither the experience or temperament to recognise regulatory danger and deal with it. They paid the price.

In the following years I have worked with so many banks big and small who have been heavily penalised for inattention, insouciance and ineptitude.

I’ve coached many boards and senior bankers on how to handle a Regulatory Intervention. Or what not to do.

Here are my top 10:

1. Don’t panic But take it very seriously. Don’t argue.

2. Agree and incentivise governance, executive accountabilities and string programme

management.

3. If you are a subsidiary, your HQ most likely “won’t understand”. Try make them

understand.

4. Fund it properly. See 3 above.

5. Put good people onto managing it. Not just who might be available or easiest to

spare.

6. Be prepared for every meeting. Give them whatever data points or MI they want.

7. If you can’t provide it, let them know, agree when you will be able to. But saying it’s

too difficult won’t help.

8. Make sure you understand the MRIA’s & MRA’s. *

9. Manage to them. If timescales are going to slip, communicate well in advance and

propose achievable alternatives.

10. Be open with employees as to what’s gone wrong, what needs to be done and by

when.

There are many more, including the perils of characterising MSII’s**, liaison & escalation protocols and what to do when Regulators disagree with each other.

My initial interaction was with the US Banking Regulator the OCC, but as my banks' problems mushroomed , I experienced most of the worlds key banking regulators including the FRB, DoJ, FCA, PRA, HKMA, MAS, BarFin, RBI, DFSA, and PBOC.

They may have different nomenclatures, cultures, sensitivities and methodologies, but they share professional pride, political pressure and usually a determination to make a point.

*MRA/MRIA - Matter Requiring Attention (or Immediate Attention).

** Management Self Identified Issue

Nick Taylor

ntaylor@monetatraining.co.uk

---

At Moneta Training we offer expert education and advice for our global clients in banking and finance. Our considerable recent experience and expertise covers a wide range of risk management challenges faced by banks and financial institutions today including (but not limited to) financial crime risk management (FCRM), anti-money laundering (AML), sanctions, countering the financing of terrorism (CFT), fraud, correspondent banking, market abuse, conduct, Basel IV, treasury, IBOR transition, asset and liability management (ALM), emerging risks, cyber and economic risk.

Please contact us to find out more.

---